Paying Off Your Personal Loan Earlier: Is it a Good Idea? - Loan Trivia


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Friday 1 February 2019

Paying Off Your Personal Loan Earlier: Is it a Good Idea?

Anyone of us who has ever taken a personal loan would wish to pay it off as soon as we can. The longer a loan continues, the more is the overall payable interest. For instance, if a person takes an unsecured loan worth Rs 2 lakh for a period of 5 years at an interest rate of 15% per annum; you’ll pay approximately Rs 85, 479 by the end of your repayment tenor. However, if you prepay it in full in the 36th month from loan disbursal, you’ll pay only Rs 69417 along with the principal balance (whatever that be) left. In short, you save some of your money irrespective of how much. 

Now, given the fact that loan repayment helps build CIBIL score, there are a lot of people who suggest prepaying a personal loan isn’t a good idea. Is that true? Let’s find out.

1) You save a lot of money: It goes without saying after the example shared above that people who choose to prepay or foreclose their loan application, save more money than people who repay their loans as per the natural repayment course decided. Thus, this is a win-win for the borrower. 

2) Builds a repo: Secondly, if you prepay your loan you actually showcase your good financial habits and get it registered in your credit history. Now, this might not get you good loan amount but it will certainly help you get the low interest personal loan deals you apply next time.

Bottom line: Part-prepayment isn’t mostly available in personal loan. Hence, if you believe you are better off with this facility, choose the right credit scheme in the first place.

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