It is natural for individuals to opt for a Personal Loan to mitigate a sudden financial need. The main reason being, Personal Loans are unsecured which do not require any collateral. Furthermore, the disbursal of Personal Loans needs minimal documentation.
Also, Personal Loans are excellent short-term financing options, since their tenures can range anywhere from 12 months to 60 months. At times, applicants find it easier to get rid of the loan before its expiry date. If they have a surplus fund for such payments, then prepayment of the loan becomes a viable option.
What is prepayment of Personal Loans?
Prepayment implies closing the loan before the expiry of its tenure. Borrowers can choose to prepay their loans in part or full. However, Personal Loans generally have a one-year lock-in before customers decide to go for full prepayments.
Part-prepayments, in turn, bring down the principal amount of the loan, thereby helping borrowers to repay the outstanding amount efficiently.
Note: Applicants must prepay a significant amount of the outstanding Personal Loan when opting for part prepayment. Low amounts of prepayments do not help.
How does prepayment affect a borrower’s credit score?
Prior payments do not yield immediate results. However, in the long run, a full prepayment serves to impact the credit score of a borrower. In cases of full prepayment, borrowers pay the entire outstanding loan amount in one go. Since the entire amount is being repaid, borrowers end up saving a considerable amount on accounts of interest payments.
Part prepayment, on the other hand, has no significant effect on CIBIL rating. But, partial repayments do help individuals settle their loans comfortably.
Therefore, closing Personal Loans off before the expiry of their tenure does help borrowers in the long run. In fact, it is one of the methods of improving the credit score.
What about prepayment charges?
NBFCs charge a minimal percentage for full prepayments. For part prepayments, the charges depend on the proportion of the amount prepaid. If borrowers prepay an amount less than 25% of the total loan, then there are no charges for part prepayments. But, the savings standing to the credit of the borrowers nullifies the effect of such charges.
However, if you haven’t applied for Personal Loans yet, take care of these few checkpoints beforehand.
What must applicants consider before they apply for Personal Loan?
Before applying, prospects must evaluate themselves on a few essential checkpoints to ensure their eligibility for Personal Loan:
- Borrowers must be sure of their repayment capabilities. For assessment, they can use a Personal Loan EMI calculator. With this, they can get an estimate of the likely payable EMI amounts for varying principal amounts and tenures. An applicant can finally settle for an apt principal amount, with the help of installments reflected by the loan EMI calculator.
- One also must keep note of one’s credit score before applying for such a loan. These scores indicate an applicant’s creditworthiness. Prospects with a credit score equal to or higher than 750 are considered to be favourable for granting Personal Loans.
Furthermore, applicants with higher credit scores have the advantage of availing an affordable Personal Loan interest rate from lending institutions.
Thus, before deciding to opt for an unsecured loan, you must be positive about your Personal Loan eligibility.
Whom must borrowers approach to avail of a Personal Loan?
NBFCs For instance, offer Personal Loans in simple terms and conditions. Moreover, individuals can also gain access to pre-approved offers for their loan. These offers simplify the process of availing finance, thereby, reducing the disbursal time.