4 MinsFeb 07, 2023
A personal loan is an unsecured loan that can be used for a variety of expenses, such as home repairs, medical bills, or even a vacation. These loans are offered by banks and non-banking financial companies (NBFCs) at varying interest rates and repayment terms.
One of the benefits of a personal loan is the option to make partial payments, which can help you save money on interest and reduce your overall debt. Partially repaying a personal loan can improve your credit score. When a loan is paid on time, it shows lenders that you are financially responsible. This can lead to better interest rates and loan terms in the future. Additionally, paying off a loan quickly can help free up money in your budget, as you will no longer have to make monthly loan payments.
Here's how it works
When you apply for a personal loan, you typically have to make fixed monthly payments for a specific period of time, usually 1-5 years. These payments include both the principal (the amount you borrowed) and the interest (the cost of borrowing the money).
With a partial payment, you can pay more than the minimum required amount each month. This extra payment is applied directly to the principal, which reduces the amount of interest you will have to pay over the life of the loan.
For example, let's say you take out a personal loan of ₹1,00,000 at an interest rate of 12% per year, with a repayment term of 5 years. If you make the minimum required monthly payment of ₹2,166, you will end up paying a total of ₹1,29,936 over the life of the loan. This includes ₹29,936 in interest.
Suppose say you decide to make a partial payment of ₹3,000 per month. This extra ₹834 per month is applied directly to the principal, reducing the total amount of interest you will have to pay to ₹21,993. This means you will have to pay a total of ₹1,21,993 over the life of the loan.
This is a savings of ₹7,943 in interest over the life of the loan, which can make a significant difference in your overall debt.
Also Read:[How To Choose The Best Personal Loan Lender]
Things to know before opting for partial payments
When considering making partial payments on a personal loan, there are a few things to remember.
- You should check with your lender to see if any fees are associated with prepaying the loan. Some lenders charge a prepayment penalty for paying off a loan early, which can negate the benefits of making partial payments.
- You should also ensure that your extra payments are applied to the loan's principal rather than just paying down interest. This will help pay off the loan more quickly.
An Axis Bank Personal Loan, for example, gives you the option to prepay your loan. Additionally, the bank provides various options, including flexible repayment tenures and competitive interest rates, making it ideal for people looking to take out a personal loan.
Conclusion
Making partial payments on a personal loan can provide many benefits. When considering this option, it's important to check with the lender for any prepayment charges and ensure that extra payments are applied to the loan's principal. With the option of a personal loan from Axis Bank, you can ensure the process goes smoothly, with flexible terms.
Want to calculate the monthly EMI on a personal loan? Check out Axis Bank's interactive personal loan EMI calculator & interest rates on personal loan.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
