Personal Loans have become a popular financing option, especially in case of a financial emergency or least expected unforeseen expenses. They offer a plethora of benefits such as no end-use restrictions, fast loan processing, substantial loan amount, and zero requirements of collateral. Also, you can check your loan eligibility before applying for them by using a Personal Loan Eligibility Calculator in India. This tool helps you to understand the maximum loan you can avail of depending on your age, income, repayment capacity, etc.
You can apply for a Personal Loan after knowing the loan amount you are eligible for. But before you apply for it, make sure you keep in mind that it’s a liability for the borrower. The borrower has to repay the loan amount with interest over a specific repayment tenure, decided in advance. The amount that the borrower has to repay every month is also known as EMIs (equated monthly instalments). Repaying the EMI regularly on time will result in the successful closing of the loan at the end of the tenure. However, borrowers also have prepayment options. The main objective behind these loan prepayments is to save on the interest component.
Let us examine the concept of loan prepayment in detail and understand the amount of interest you save by using the Personal Loan Prepayment calculator.
What is Loan Prepayment?
The borrower has a fixed liability of repaying the loan EMI every month for the entire loan tenure. At times, the borrower could receive a lump sum amount that they can utilize for making a prepayment to the loan account. Simply put, the prepayment is nothing but an advance payment of the loan. The sole aim of prepayment is to reduce the interest burden on the loan.
What are the Benefits of Personal Loan Prepayment?
Prepaying a Personal Loan can have several benefits, including:
- Interest Savings: By paying off the loan earlier than the scheduled loan repayment tenure, you can save money on the total interest charges.
- Improved Credit Score: Prepaying a loan can demonstrate to credit agencies that you are financially responsible and may lead to an improved credit score.
- Reduced Financial Stress: Paying off a loan early can provide a sense of financial freedom and reduce stress related to loan payments.
- Flexibility: Many Personal Loan lenders levy prepayment penalties, but some lenders allow prepayment without penalty, so you can choose to pay off the loan when you want to.
- Lower EMI: By paying off a loan early, you can reduce the overall EMI (Equated Monthly Instalment) you need to pay and save money.
What is Personal Loan Prepayment Calculator?
A Personal Loan Prepayment Calculator is a tool that allows you to calculate the potential savings you could make by paying off your loan ahead of schedule. It works by considering factors such as the interest rate on your loan, the remaining balance, and the amount you plan to prepay. The calculator then estimates how much interest you will save over the loan tenure if you make the prepayment, and how it would impact the total amount you will pay for the loan. It is a useful tool for people who want to pay off their loans early and save money on interest.
How Does the Loan Repayment Calculator Work?
You may already know that the manual calculation of loan EMI itself is a time-consuming and complicated task. Hence, we use the Personal Loan EMI calculator to do so. Similarly, calculating the amount of interest you save by doing loan prepayment is a complicated task. Thus, we use loan prepayment calculators to make this calculation easy for us.
To use a part-payment calculator, you need to enter the following loan information:
- Principal loan amount
- Tenure in months
- Interest rate
- Pre-payment amount
Once you enter all these details, the loan prepayment calculator tells you how much money you will save on EMIs after making the part payment. Hence, you can use a loan prepayment calculator to estimate the potential savings you could make by prepaying your loan.
To Conclude
Ultimately, the decision to prepay your loan will depend on your financial situation and goals. It’s important to carefully consider the pros and cons and consult with a financial advisor before making a final decision.
