Personal loans in India are very famous because of its flexibility. You can use it for multi purposes which involve pre planned and emergency cases. The interest rate is higher as this is an unsecured loan. You can reduce the interest burden by prepaying the personal loan. Prepayment of loan helps the borrower to clear debt amount earlier than the loan tenure. This can be done in part or full.
Prepaying the whole loan amount:
Prepaying personal loan at an early stage is a good option because you save a huge amount of interest. At an average, a loan taken at 15% for 4 years for any amount above 1 lakh results in you repaying more than 40% of interest value in the first year. Hence it’s wise to prepay as early as possible.
Some lenders will maintain lock in period of 1 year* where you cannot prepay until the first year is complete. In this case, you can opt to prepay after the lock in period is complete. Look out for prepayment charges levied by lender while signing the loan agreement.
Prepaying the partial loan amount:
Prepaying partial loan amount is another good option. You can prepay partial amount of personal loan few times in a year. The cap on number of times you can prepay is set by the lender. The advantage is that when you prepay a partial amount of personal loan, it gets deducted from the principal amount. Hence your interest amount and EMI reduces with each part repayment.