It is no surprise that personal loans have become increasingly popular over the years as they provide quick access to funds and low personal loan rates. With the growing popularity of loans, one of the questions that have started to come up is whether or not it is a good idea to pre-close a personal loan. So, let’s get started!
What are pre-closure charges?
Pre-closure charges are the charges levied by banks at the time of closure of the loan which include the principal borrowed and current personal loan rates interest that has accumulated throughout the tenure of the loan.
In most cases, the banks levy a pre-closure charge to recover some of the interest that they will lose if the customer chooses to pay back the loan amount before the end of the tenure. Before opting for a loan, it is important to know the pre-closure charges that the bank will be levying to make an informed decision. To get an idea of the pre-closure charges, you can make use of a Personal loan EMI calculator, to get an estimate of the charges.
Pre-closure charges for different types of loans
Pre-closure charges are applicable when you decide to pay off your loan before the tenure ends. You can calculate payoff and personal loan rates through a personal loan calculator. Here is a quick look at pre-closure charges for different types of loans:
- Personal loan: Pre-closure charges for personal loans can vary from 3% to 5%. Personal loan rates are high and are usually for short to medium-tenure loans, so banks earn quick revenues. Personal Loan Calculator is handy for calculating EMI payments and interest rates.
- Home loan: As per RBI mandate, there are no more prepayment penalties on home loans with floating interest rates. However, for fixed interest rates, pre-closure charges vary from 1% to 5%.
- Auto loan: Pre-closure charges for auto loans are between 1% to 6%. Normally, auto loans are allowed pre-closure only after six EMIs. Pre-payment charges are applied to the remaining amount of the loan.
- Loan against property: The pre-closure charges for loans against properties can range from 1% to 2%. These loans are taken by pledging property and are usually used for various needs.
Are you considering pre-closing your loan?
Pre-closure of loans can be done in full or in part, and there are several benefits associated with it. Pre-paying your loan can help you reduce your debt, save on interest payments, and provide peace of mind all at once.
Before you decide to prepay your loan, you should familiarise yourself with the process and understand the pros and cons. Using a personal loan calculator and researching personal loan rates can help you make an informed decision.
The initial step in considering the pre-closure of a loan is to find out the prepayment penalty, if any, that your lender charges. Many lenders will levy a penalty fee for prepayment in full or in part, and you should be aware of this before you make your decision.
The benefit of full prepayment is that you’ll free yourself from the burden of your loan and the worry of high personal loan rates. But, if your lender charges a prepayment penalty, it could be costly. Make sure to compare this cost through a personal loan calculator and decide which is more advantageous for you.
Part prepayment is another option to consider. While the amount you pay towards the principal doesn’t need to be as large as with full prepayment, you should remember that only paying off a significant amount of the loan will yield any real benefit.
When considering the pre-closure of your loan, it is important to calculate your current financial situation through a personal loan calculator.
Conclusion
Pre-closing a personal loan is a personal decision that should be made based on individual financial circumstances. It is important to research the pre-closure charges, use a personal loan calculator to understand the exact amount owed after pre-closure, and compare Personal loan interest rate with other loan products. Pre-closing a loan may be a great option for some, but it is important to understand the implications before making a decision.