Personal Loan Prepayment

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Personal Loan Prepayment
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What is Loan Prepayment?

• It means early payment of the loan.
• In other words, one can pay off the personal loan
  before the allocated tenure.
• This usually happens when people have a large sum
  of money, and they are ready to repay the loan.
• It will lead to either reduction in the EMI or
  tenure of the loan.
• However, many lenders charge some extra cost on
  your loan amount to carry forward your prepayment.

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What are the Prepayment charges?

• Banks usually ask for some extra charge when the
  borrower decides to prepay the loan.
• Prepaying the loan would mean lesser interest
  rate charged by the bank.
• It is recommended to check with the bank about
  the prepayment charges.
• Usually ranges from 1 to 5 of the principal
  outstanding amount.
• However, prepayment charges varies bank to bank.

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List of Prepayment charges offered by different
Banks and NBFCs in India
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Name of the Bank Pre-payment Charges
HDFC Bank In the first year the prepayment charge is 4 In the second year the prepayment charge is 3 In the third year the prepayment charge is 2 of the outstanding amount
ICICI Bank Flat 5 on the outstanding amount
YES Bank  In the first year, the prepayment charge is 4 In the second year, the prepayment charge is 3 In the third year, the prepayment charge is 2 of outstanding amount More than 3 years, there is no prepayment charge
Kotak Mahindra Bank Up to 4
SBI 3 on the prepaid amount
IDBI Bank If prepayment is done before 6 months, then prepayment charge is 2 and after that there no prepayment charges.
Yes Bank You can do prepayment after paying 12 EMIs and after that the borrower will be charged a pre-closure charge of up to 4
Citi Bank Allowed after 1 year, after that a charge of 4 on total outstanding amount is levied
Standard Chartered Bank It is allowed after completing 12 EMIs and giving 21 days notice to the bank. Then one has to pay a charge of 5 on the outstanding amount.
IndusInd Bank Salaried individuals can do the prepayment after paying 12 EMIs, while the self-employed individuals can prepay after paying 6 EMIs. The interest rate charged for prepayment is 4 on the outstanding amount.
Bajaj Finserv 2 3 of the principal outstanding
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Impact on Credit Score

• Full prepayment means successful closing of a
  loan account, which means that you have good
  creditworthiness.
• Thus, it impacts the credit score positively.
• You must know here that part prepayment will not
  impact the credit rating, but it will reduce the
  burden of the loan.
• If you are looking forward to improving your
  credit ratings, then you must go for complete
  prepayment. 

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Benefits

1. Free from debt Prepaying the loan will make it
   easy for you to overcome the burden of debt.
2. Save on interest rate Most of the banks have a
   lock-in period, which means that you can prepay
   the loan only after paying off certain EMIs. You
   can prepay the loan and save on the interest rate.

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The Bottom Line

• Personal loan prepayment can only be helpful if
  you prepay the loan amount in the earlier phase,
  i.e., as soon as your lock-in period gets over.
• Its a great way to overcome the burden of
  continuously paying the EMIs.
• Moreover, you can also improve the credit score
  by going ahead with complete pre-payment of your
  personal loan.