Whenever there is a sudden need of money, many people opt for a personal loan. This fulfils their financial needs. Personal loans are easily available as compared to other unsecured loans. After taking the loan, when the person has sufficient funds, he opts for prepayment.
If you are also pre-paying a personal loan, then first of all you should know that you may have to pay some charges for this.
What are the loan prepayment charges
When a person repays the loan before the loan period, it is called prepayment, on which a penalty is levied by the bank’s financial institution. This charge is called prepayment penalty. In this, a part of the loan or the entire loan is paid.
Why is prepayment charge levied?
This penalty is charged by financial institutions to compensate for the interest that they would have earned during the loan tenure. That is, to cover the loss of income, lenders levy a prepayment charge when the entire or part of the loan is paid in advance.
How much prepayment penalty is charged
Usually, the prepayment penalty can be between 1 to 5 percent of the outstanding loan amount. However, different financial institutions may have different rules for this.
Get this information in advance
When you apply for a personal loan, you should get all the information about the terms and conditions of the prepayment charges at the time itself. So that if you ever want to prepay the loan later, you will be aware of the interest rates.
Benefits of Personal Loan Prepayment
Personal loan prepayment can prove to be a strategic decision for borrowers. It reduces the financial burden and also improves your credit score.
There is a plan to eliminate prepayment charges
RBI is considering eliminating prepayment fees and closure fees on floating rate loans to MSME borrowers. So that lenders can be given relief. RBI has sought opinion from stakeholders on this matter by March 21, 2025.
Related Articles:-
New Vande Bharat: Now Vande Bharat is going to start on this route; Know the details
7th pay commission: Govt announced to increase the DA of these employees by 3%, Know all details
DGCA Order to Airlines: Airlines must share passenger rights link via SMS, WhatsApp, Details Inside
