There is an old aged saying that ' A loan should be taken as less as possible and returned as early as possible'. This saying is much applicable when it comes to personal loans.
Personal loans are the most demanded credit product of the present day. The flexibility and fast processing make it the best choice of many when an urgent need of fund arises. But the fact which is often overlooked is the cost of borrowing a personal loan.
Needless to mention that, personal loans are one of the costliest credit products of the present credit market. Generally, a personal loan interest rate starts from 11% and can be as high as 25%. While paying a high-interest rate the total outgo of the loan becomes too high.
This sky high cost of borrowing a personal loan can be brought down by Part Payment and Pre-Closure of a personal loan.
What is a Personal Loan Part payment?
A personal loan part payment means when a borrower makes a payment of a lump sum amount towards the credit account which brings the outstanding amount down. One can use his idle money for a part-payment. A part payment is an appreciable financial decision as it makes you save the money which you were about to pay on that particular amount. A part-payment can make the maximum saving when a considerable amount is paid. Paying very little amount may not make you save much. Moreover, a part payment earns maximum profit when it is done at the early period of the tenure. As the interest on any kind of loan is calculated in a compounded manner, it is always best to pay it as early as possible. A longer tenure increases the cost of borrowing.
A part payment can be done a number of times. Some of the lenders keep a cap on the number of part-payment whereas some other banks allow it many times. Till a few years back, one had to pay a part-payment charge while going to do so but recently this has been waived off by the lenders. The only thing one has to keep in mind that any lender will accept a part payment application only if the loan account is out of lock-in period. The lock-in period for a personal loan is 12 months. After completion of 12 months, one can go for a part-payment.
What is a Personal Loan Pre-Closure?
A personal loan pre-closure means when you close a loan account prior to the end of tenure by paying the outstanding amount at once. A pre-closure not only saves much in interest payment, it makes you debt free at the same time. A pre-closure of a loan should be done early to save much. If you do the prepayment of your loan as soon as you are out of the lock-in period, you will be able to save a considerable amount of money. If you have saved the amount which is equivalent to the outstanding amount of the loan then you can go for a pre closure by following the mentioned steps.
First of all, you are to contact your lender and have to submit an application mentioning that you want to pre close your loan. Then you are to submit your cheque or DD for the amount which is outstanding. The next step is of processing the cheque/DD. Once the money is transferred to the lender, you are to collect the acknowledgement receipt along with the blank cheques which you have given to the lender at the time of applying for the loan. It generally takes a week or two to hand you over the letter of acknowledgement. One can initiate all the process online too.
The Effect Of Part Payment And Pre-Closure On Credit Rating
Anything and everything we do which is related to credit affects our credit rating. A part payment or pre-closure of personal loan is not exceptional. One may not find any immediate change in the credit report because of having a prepayment, but in long run, a successful pre closure of loan gives a boost to your credit scoring. Not only the increased score, this action of yours will be reflected on your credit report too which is considered as a positive point. In another hand, a part payment has no effect on credit score. Your credit score will remain as it was before but your loan burden will definitely be lightened.