Should You Prepay Personal Loan Before Other Loans?
If you have additional funds and enough monetary backing, then prepaying a loan can actually be a good idea but one has to consider all the implications in terms of interest saved and opportunity missed. One must take into considerations the short term as well as the long term consequences of prepaying a personal loan. Nowadays, people have multiple loans for various purposes. Whenever there comes a chance to pay off an existing loan, one must prioritize it.
Consider the following factors before prepaying your personal loan:
Interest Rate- Personal Loan Interest Rate is the highest as compared to other loans such as acr loan, education loan, gold loan, etc. Thus, it is advisable to prepay your loan amount early on itself to avoid paying off huge amounts which may exceed the actual amount that has been borrowed. This will contribute to your savings as well and will remove the burden of heavy monthly EMIs.
Loan Tenure Left- Loan repayment is done in the form of EMIs throughout the tenure on a monthly basis. Hence, paying off a personal loan in the initial stage is advisable rather than paying it off in the end. You may have an existing car or a gold loan in the initial stages, so it is advisable to pay off those loans against the personal loan whose tenure is about to end. An analysis on the amount left to be paid is thus essential when concurrent loans are active.
Default Factor- One must consider the consequences if the borrower fails to repay the EMIs on time. If an individual is tagged as a Personal loan defaulter, then it affects the credit score in a negative way and creates inconvenience in future for availing of fresh loans. In case of secured loans, the asset that has been deposited as a collateral security shall be confiscated. You need to prioritize your needs and accordingly pay off the existing loan.
Check your EMI here: Personal Loan EMI Calculator
Opportunity Factor- Another perspective to be considered while choosing prepayment of an individual advance is the sort of investment avenue that one approaches by then of time. It may not be brilliant to prepay an individual credit on which you are paying 16% loan while passing up an open door which has guaranteed returns of 18-20%.
So, if you have some extra lump sum amount of money that you wish to utilize in the prepayment of any of the existing loans then you must consider all the above points as discussed and accordingly make the right decision. You must also not that generally, you cannot foreclose a loan before 12 months of the loan sanction period, but in case anybody wishes to prepay the loan before the agreed tenure then they need to pay prepayment charges which is a penalty amount charged by the bank to the applicant. This charge is a small part of your total amount and needs to be paid without fail.
Leading Personal Loan providers:
HDFC Bank personal loan
SBI personal loan
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