- You can reduce your personal loan burden by using the part prepayment facility
- Read here the norms of different lenders regarding the same as well as the time when it can fetch you maximum benefits
Personal loans can raise your obligations much more if you don’t choose the interest rate wisely. It could raise the EMI considerably, and if you glance at the loan statement, you could see interest constituting much of your EMI. However, you can correct things by using the Personal Loan Prepayment facility.
The prepayment means the payment of the outstanding loan balance either in full or in parts. With this, your overall interest burden reduces. Doing a full prepayment may not be everyone’s cup of tea in the times of inflation we are in. But planning a personal loan part prepayment and executing it in real-time is very much possible!
If you are yet to take a loan, you could check the part prepayment norms of lenders and choose the one charging very less or nothing for this transaction. Existing borrowers should also see the same. And if the charges and norms are not flexible, they should rather go for a balance transfer to reduce their debt burden. This will be a prepayment for the existing lender though where your loan account will get closed and transferred to the new lender. But since we are here to focus on the part prepayment facility, we will stick to it. Let’s get started!
How Should You Go About Doing a Personal Loan Part Prepayment?
Knowing the right time for a personal loan prepayment (part payment) is half the job done for you! The sooner you do, the more you will save and vice versa. So, if your personal loan is for 5 years, look to part pay it within 2-3 years of the loan. The reason being the interest payment is likely to be much more in the initial years as opposed when the loan is a year or a few months away from completing its term. And last, but not least, check the personal loan prepayment charges of different lenders before choosing the best lender. Also, the charges vary based on the time of prepayment. This particular line should also interest the borrowers who are already paying a personal loan.
Let’s Read the Personal Loan Part Prepayment Norms of Different Lenders
While some lenders offer both full prepayment and part-prepayment, some allow only a full prepayment. So when choosing a personal loan, read their prepayment norms carefully. Below, we will share with you the details of lenders offering such a facility.
HDFC Bank Personal Loan Part Prepayment Facility
HDFC Bank allows you a personal loan part prepayment facility only when you have paid your 12 EMIs successfully. Further, it allows part payment upto 25% of the principal outstanding, and that too, only once in a financial year and twice during the loan tenure. When you do a personal loan part prepayment within the 13-24th month of the loan, the bank will charge 4% of the part payment amount. If you do a part payment from the 25-36th month, the charge will come down to 3% and 2% after 36 months.
What About YES BANK Personal Loan Part Payment?
Like HDFC Bank, YES BANK allows part prepayment only after the successful payment of the first 12 EMIs. YES BANK personal loan part prepayment norms are based on the stage where your loan is. If the loan remains within the 13-24th month, the bank will allow you to make a personal loan part prepayment of 20% of the principal outstanding. As the loan goes past the said period and remains upto 36 months, you can do a part prepayment of upto 20% of the principal outstanding. The permissible part payment amount goes upto 25% each when the loan is within 37-48 months and 48-60 months. You will need to pay a charge of 2% of the part payment amount too.
You can do a personal loan part prepayment once in a financial year. As per the prepayment clause, YES BANK will subtract the part payment amount from the principal outstanding, but the EMI won’t change. However, it is a blessing in disguise for you! The same EMI post the personal loan part prepayment will reduce the interest payment even more.
Is IDFC First Bank the Best Option for Personal Loan Part Prepayment?
IDFC First Bank has a Smart Loan Facility feature for personal loan borrowers wherein it allows part payment of upto 40% of the principal outstanding as soon as you pay the first three EMIs. For this, the bank charges 2% of the part payment amount.
Let’s Look at Bajaj Finserv Part Payment Facility for Personal Loans
Bajaj Finserv personal loan part prepayment charges are calculated at 2% of the amount paid. Most likely, the lender will allow part prepayment once you pay the first 12 EMIs of the loan spotlessly.
How Much Does the SBI Charge for Personal Loan Part Payment?
The country’s largest lender i.e. State Bank of India (SBI) levies a charge of 3% on the part payment of personal loans. It will be allowed only after paying the first 12 EMIs successfully.
Let’s Check the Mathematics of Personal Loan Part Payment
The reduction in interest payments is evident with a personal loan part payment. But how much will the reduction be? Maybe an example below will give us a clue! Take a look.
Example – You take a personal loan worth INR 8.50 lakh at 13% per annum for 5 years. If you wish to make a part payment of INR 3 lakh at the end of 2 years, how much will you save eventually?
|Repayment Aspects||Amount (In INR)|
|EMI Payable at 13%||19,340|
|Interest Payable Over 5 Years at 13%||3,10,407|
|Interest Payable for 2 Years||1,88,157|
|Outstanding Loan Balance at the End of 2 Years||5,73,993|
|Part Payment Amount||3,00,000|
|Outstanding Loan Balance Post Part Payment||2,73,993|
|EMI Payable for the Next 3 Years||9,232|
|Interest Payable for the Next 3 Years||58,356|
|Interest Payable for 2 Years + Interest Payable for the Next 3 Years||2,46,513|
If you continue to pay the same EMI after part payment, the interest outgo will then amount to around INR 25,000 for the remaining time. So, your overall interest outgo (Before & After Part Payment) equals INR 2,13,157, raising your savings to INR 97,250.