If you have been considering a personal loan, but are unsure if it is the best option for you, part payment may be the perfect solution. Partial payments can help avoid interest charges and make the loan more affordable. Plus, once the loan is paid off, you will get to save money in interest. With a Part Payment plan, you pay off your loan over time rather than all at once. This can help you save money and get ahead on your debt. Furthermore, it can be a flexible solution if you have to take time off or have other financial obligations that prevent you from making full loan payments.
Let’s read more about the part payment personal loan and how you can benefit from it. But, before getting into it, let’s understand what pre-payments are?
Pre-payment of a personal loan
Pre-payment of a personal loan is a great way to avoid interest and get the best terms possible. By prepaying your loan, you are also taking advantage of reduced interest rates and other benefits that come with early payment.
Benefits of Pre-payment
Pre-payment of a personal loan can offer several benefits, such as:
- Lower interest rates
- Higher credit score
- Reduced monthly payments
- Easier repayment schedule
- No required equity contribution
Why should you go for Pre-payment?
There are a few reasons why you may want to consider pre-paying your personal loan instead of waiting to pay it back in full. Here are just a few:
- You could get a lower interest rate.
- You could avoid paying late fees and penalties.
- You could receive your money sooner if you pre-pay your loan.
- There is no need to worry about missed payments or getting into debt if you choose to pre-pay your loan.
Also Read: How does Gold Loan Work in India?
What is Part pre-payment?
Part pre-payment is a contractual arrangement between a buyer and a seller in which the buyer pays in advance for goods or services. This can be beneficial to both parties because it allows the buyer to have control over the timing and quantity of the purchase, and it helps the seller avoid having to wait for payment from customers.
Penalty for pre-payment
NBFCs and banks earn profits from the interest they receive on the distributed loans. The longer the tenure of a loan, the more interest the borrower will pay, which means more profit for the lender. But, in case the borrower makes pre-payments and part payments, the remaining amount of the loan reduces significantly. And this means that the borrower has to pay less interest. So, lenders charge a percentage of the paid amount that can compensate for the profit they have lost. The penalty is usually calculated in either two ways – the percentage of the repaid amount or the percentage of the principal amount.
Effect of part payment of personal loan on credit rating
If you have a personal loan with a part payment feature, your credit rating may be affected. This is because the part payments will be counted as regular payments on your loan and will affect your debt-to-income ratio.
But if you think about it in the long run, a part payment means that you have closed off the loan prior to the chosen period. This will definitely be considered a positive point while calculating your credit score.
Part pre-payment calculators
Prepayment calculators can help you figure out how much money you’ll need to prepay your mortgage, car loan, or other loans in order to have them go into a lower interest rate. It will show you all the aspects you should be aware of to know whether the part payment personal loan is the right decision for you or not.
Should you repay your personal loan early?
Should you repay a personal loan early? There is no definitive answer, as it largely depends on your individual financial situation and goals. Some people believe that repaying a loan early can lead to higher interest rates and potential penalties, while others believe that it’s always better to get the money back as quickly as possible. Ultimately, it’s important to weigh all of your options before making a decision.
So, personal loans offer you a way to get the money you need quickly, without having to put up collateral. Just be sure to understand the terms and conditions of your loan before signing on the dotted line. You also might want to consider part payment options if you’re not comfortable with full payment at once. With these options, you can spread out your payments over time, which can help keep your debt manageable. If you have any doubts, you can ask your lender about the part-payment process or anything related to personal loans. Moreover, you can apply for personal loans with reputed lenders like MoneyWide to get the right advice.