A Personal Loan is a financial solution which can be availed for personal needs. It is one of the most popular choice among borrowers when it comes to loans. It easily helps to fulfill the financial requirements. Personal Loans can be used for variety of purposes like wedding, travel, medical emergency, education, home renovation, debt consolidation and much more. Since they are unsecured loans, you do not have to submit any collateral against the loan.
Also, most banks today provide personal loans at attractive interest rates. Based on your credit profile, you can get the best personal loan possible. And once you borrow the loan, it can be paid in EMIs (Equated Monthly Installments) over a repayment tenure which is mostly flexible. There are options of closing the loan early i.e before the repayment tenure ends. But does it make sense. Is it a viable option? Will it affect the process of availing a Personal loan in the future?
Here are some important details on whether it is a good option to pay off personal loans early. As, when you pay them off early, there is a procedure for it which is a bit different.
Basically, when a person avails for a loan, his/her prime concern is how would he/she pay it back as one has to plan the EMI and the monthly budget to manage the finances and he/she always bothers about if he/she will be able to pay off loans on time. So, it’s better to pay the loan that are usually of higher interest rate, first. These basically include your credit card dues.
Paying off these debts can significantly reduce your financial burden. If you have a personal loan of lower interest rate, you can stick to regular payment mechanism and make uniform payments across the tenure. This will help track your finances better, as paying it early, before the tenure does not have much of an impact.
Also, if you have a personal loan with a lower interest rate, you can earn returns on it at a better rate, if you invest in stock market. As mentioned earlier, always go for paying off loan of higher rate of interest first. Also, if you have only mortgage as debt, then it better to pay your personal loan well in advance as interest rates on mortgages is quite low as compared to personal loan.
Another very important point to consider is the fees and charges associated with closing the loan early. This is called prepayment charge. A prepayment charge is the fee that you need to pay when you close the loan before the term ends. In order to make up for the money, banks charge this fee.
Prepayment charges can affect your savings, so you need to be very careful. If you think you can save money by making regular payments, then stick to the same. Do not opt for prepayment in that case. Also, it may so happen that you close the loan early but then you would need funds to fulfill an urgent requirement, then if you apply for a loan, it will surely have a higher rate of interest. These days a lot of these activities can be done on personal loan apps where you can pay your loan EMI, check interest rates and do much more.
So, in a nutshell, if you have extra cash at hand, that you do not require to be used in anything important, you can opt for prepayment else stick to regular payments. Carefully analyze your financial situation, and then make a decision. It is eventually boils up to closing the loan, either early or on time.
If you need a Personal loan on urgent basis, you can always opt for one available on Finserv MARKETS. You get a loan of up to Rs. 25 Lakhs, with a smooth online process and without collateral. No heavy documentation is involved and you can pay the loan in tenure ranging from 1-5 years. The approval is instant and you get money in just 24 hours. So, if you are in need you can apply for personal loan on Finserv MARKETS.