What are the Benefits of Making Partial Payments on a Personal Loan?

A personal loan is a go-to option for people during a financial crisis. Borrowers are not required to pledge any collateral, and the loan processing protocol is hassle-free. In addition, there are no restrictions on its usage. Personal loans can cover vacations, home renovation, higher education, weddings and medical expenses.

Apart from that, another significant advantage here for you, the borrower, is partial personal loan payment availability. It helps you to manage your debt better by paying back a personal loan in small and convenient parts.

Advantages of part-payment on Personal Loans

Following are some benefits of paying back a personal loan in parts:

Reduce the total interest 

Even if you have secured the credit at the personal loan minimum interest rate, it still affects your debt. When you pay off the loan in part payments, you reduce the principal loan amount. The total debt decreases, and so does your financial burden.

Get free of the financial burden

The biggest benefit of making part-payments while paying any loan off is freedom from that debt quickly. The same is also applicable to personal loans. When you make partial payments and close the personal loan quickly, it also affects your credit score positively.

Get a chance to revise the EMIs

Revising the EMIs as per your suitability is another benefit of making partial personal loan payments. Once you have made a partial payment, you can keep the same term and reduce EMI or keep the same EMI and shorten the loan term to pay off the loan faster. It allows you to pay off your debt faster. It is up to you how you want to manage this.

Reflects well on your credit profile

Another notable advantage is that partial payments reflect well on your credit profile. Paying off all your debts ahead of schedule will bolster your reputation as a borrower, which augurs well for future loan applications.

How does personal loan part payment work?

In most cases, when you apply for a loan, you must pay specified monthly instalments for a fixed duration, generally 1 to 5 years. The EMI is the sum of the principal (the borrowed sum) amount and the personal loan interest rate in these instalments.

You can pay over the bare minimum, i.e. EMIs, by making partial payments. This extra amount goes straight towards the principal repayment, lowering the total interest you would have paid throughout the loan.

Let’s consider an example to understand this concept better. For instance, you have secured a personal loan of Rs. 1,000,000, with a 5-year payback period at an annual interest rate of 12%. If you pay the minimum amount due each month of Rs. 2,166, you will have paid Rs. 1,29,936 throughout the loan. So, the total interest payable is Rs. 29,936.

Let’s assume you want to pay Rs. 3,000 each month as EMI. The extra Rs. 834 a month is added to the principal repayment, bringing down the total interest to Rs. 21,993.

You can always use additional funds and pay Rs 25,000 at once to reduce the interest payment significantly. The quantity and timing of your part-payment determine what you save by lowering your interest rate. Even a minimal partial payment on your loan will only assist if there are charges.

Things to keep in mind when choosing partial loan payments

There are a few factors to keep in mind when considering paying partially on a personal loan:

Dig up the details: To find out if there are any costs involved with paying off the loan early, you should speak with your lender. Partial payments may be counterproductive since specific lenders impose additional fees.

Be aware: Be sure that any excess payments go towards the loan’s principal rather than the interest, making the loan easier to repay sooner.

Do not forget to get the NOC: If you close your loan early with part payments, do not forget to get the NOC from the lender. It will ensure you have paid the loan in full and no dues are left.

In Conclusion

 

Personal loan part payment is one of the easiest ways to clear your dues before the stipulated time. Opting for this process has its benefits, and if you can time it well, you will save significantly on repayment. Access the loan amortisation schedule and make the most of this facility.