Personal loans are among the most popular options for fulfilling financial needs, owing to their flexible and highly accessible nature. Just like any other loan product, once it is availed, it needs to be repaid in EMIs till the end of the tenor. However, sometimes, when borrowers have access to surplus funds, they consider paying off the outstanding principal before the loan end date.
One crucial feature that most borrowers lookout for while applying for a personal loan is the prepayment and foreclosure facility. This facility enables borrowers to reduce the overall cost of the loan.
- India’s personal loan market is expected to grow at a rate of 10% between 2021 and 2025.
- By August of 2020, the volume of personal credit stood at Rs.5,07,684 crore.
However, the decision to make a prepayment should be based on multiple factors including, loan interest rate, remaining repayment tenor, prepayment and foreclosure charges, and tax benefits. Borrowers can gauge prepayment’s impact more accurately with a personal loan prepayment calculator. To make the most of such a financial tool, borrowers must become familiar with its USP.
Prepayment of loan calculator – In brief
Typically, prepayment can be defined as early repayment or repaying a loan amount before its due date. This directly helps to lower the outstanding principal amount.
Usually, borrowers opt for this facility to benefit from any of these options –
- Lower EMI amount
- Reduce loan tenor
To determine how prepaying existing loans can help borrowers, they must utilize a part-payment calculator online. It is essentially an online tool that helps understand the repercussions of repaying an outstanding loan amount before its scheduled date.
Such a calculator requires users to enter details like loan amount, tenor, interest rate, and prepayment amount to check the outcome. An effective prepayment loan calculator provides insight into details like revised monthly installments and repayment tenor.
It also shares information about how much a borrower is likely to save in terms of overall EMI. While some borrowers may consider prepaying loans a means to plan personal loan EMI better, they must become familiar with it in detail for better understanding.
Steps to using a part-prepayment calculator
An existing personal loan borrower decides to prepay the outstanding loan amount. However, before initiating the request formally, he decides to use the prepayment calculator to understand the final impact on the existing loan amount.
He follows these steps to use the online tool –
Step 1 – Visits the official website of a reputed financial institution.
(Individuals who have installed the personal loan app of their lender online can access it to use the said calculator in similar ways)
Step 2 – Navigates to the calculator page.
Step 3 – Enters the principal loan amount, i.e., the sum of money you borrowed from the financial institution.
Step 4 – Enter the applicable interest on the borrowed amount of money.
Step 5 – Provides detail of the repayment tenor.
Step 6 – Enters the amount of money the borrower wishes to prepay.
Note that the prepayment amount should be at least 3X of a monthly installment.
Once these steps are completed, the outcome will appear on the screen within seconds and help facilitate ways to manage debt.
Example: Suppose an individual who had availed a loan amount of Rs.10 lakh for 5 years @11.75% decides to prepay Rs.5.6 lakh.
Generally, leading financial institutions like Bajaj Finserv lay down simple requirements to avail the facility to loan prepayment. They also provide customers with pre-approved to ensure a hassle-free loan application procedure. Check your pre-approved offer in a few seconds with your name and contact number.
Besides checking the offer, borrowers may also use the Bajaj Finserv loan app to track their repayment schedule and loan account with increased convenience.
While at it, they should also find out about the procedures when closing a personal loan. For instance, assessing personal loan eligibility for prepayment or foreclosure can help greatly. This will help borrowers to initiate the process involved with more convenience.
Borrowers can also use other financial tools like prepayment calculators as and when required to simplify their borrowing experience to a great extent.