Indeed, when you begin to repay personal loans, they can appear heavy at times. Partial prepayments are an option, though, and they are not unpleasant. This makes it possible to lower both the principal and the interest rate; additionally, it may even decrease the loan term. Let’s see if this makes sense to your perspective.
What Are Partial Payments on Personal Loans?
Partial payments are when you pay an extra amount on the loan principal in addition to your usual monthly installment.
- These payments are paid ahead of your next EMI’s due date.
- Unlike full prepayment, you’re not closing the loan entirely but reducing the outstanding balance.
- This leads to lower future EMIs or a shorter loan tenure.
Key Benefits of Partial Payments
- Interest Savings: A reduced principal means lower interest over time.
- Shorter Loan Tenure: Paying extra helps close the loan faster.
- Lower EMI Burden: If tenure remains the same, your monthly EMI decreases, freeing up income.
How Do Partial Payments Impact Loan Calculations?
- Reducing the principal means interest is recalculated on the new, lower balance.
- Depending on the lender’s terms, you can either reduce EMI or shorten tenure.
- Lower total interest means more savings for other financial goals.
Factors to Consider Before Making Partial Payments
- Prepayment Charges: Some lenders impose penalties on early payments—check your loan terms.
- Loan Tenure Decision: Choose between a lower EMI or shorter tenure.
- Emergency Fund: Ensure this payment doesn’t affect your savings.
- Investment Alternatives: Compare prepayment benefits with potential investment returns.
How to Make a Partial Payment?
- Confirm with your lender if partial prepayments are allowed.
- Decide the amount to prepay.
- Make the payment via a bank branch or online platform.
- Specify that the payment should reduce the principal.
- Request an updated amortization schedule for clarity on changes.
- Alternatives to Partial Payments
- Refinancing your loan at a lower interest rate.
- Increasing EMI payments if your income allows.
Conclusion
Making partial payments on your loan is a smart financial move. It helps you save interest, reduce EMI, and close the loan faster. Take charge of your finances today!