Should We Choose Loan Prepayment in India or Not?

 

Are you familiar with loan prepayment methods in India? There are different reasons for and against this method. In this blog, we will talk about some of the important factors that we need to know about loan prepayment, the pros and cons of this method, and then choose the right one.

Unless you check a few aspects, it is hard to tell whether the loan prepayment is a good method or not. Check the app for DSA to find some inner news about different loan options in India and learn about the best ones.

Learn About the Basics of Loan Prepayment in India

When you pay your loan amount in advance, either in full or partially, this is called loan prepayment. Both full prepayment and partial prepayment are in demand. Here are some important aspects that you need to know about-

a.      When you are making the full payment, it is known as full prepayment. Here, you are closing the loan book and will definitely have some additional benefits.

b.      Next is partial prepayment. Here, you are not settling the full amount but making a partial payment. The rest you have to settle using the traditional EMI method.

Why Should We Consider Choosing Loan Prepayment?

People use loan prepayment for a number of reasons, here are a few of them-

1.      When you are prepaying the loan amount, you don’t have to give the additional interest rate. It will reduce your total interest payment.

2.      As soon as you can settle your debts, it will give you a great piece of mind.

3.      Do you want to boost your credit score? You can try out paying your loans in advance. It will increase your CIBIL score for sure.

4.      Finally, people choose to go for prepayment because they want financial flexibility and work towards better financial goals.

These reasons are alluring enough for us to go for loan prepayment.

What Are the Benefits of Using This Method?

There are so many benefits you will have once you choose the loan prepayment method-

a.      As we have told you, choosing the right prepayment will reduce the total interest amount on your basic loan.

b.      We don’t need to prolong the period of a loan. If possible, make it short and use prepayment methods to do so. Talk to your DSA partner so that you can discuss your issues with him.

c.       In today’s time, financial planning is hugely important. Focus on quality investment and attain your long-term financial goals.

d.      Who wants to continue the pressure of EMI? We don’t. Partial prepayment will help you reduce the EMI amount and further loan settlement.

There are many more benefits of using the prepayment method. You will learn about them with experience.

Are There Any Cons to This Method?

Loan prepayment does have some issues as well. Unless you learn about them, too, it is not wise to choose them. The following drawbacks are there in loan prepayment-

1.      Some banks impose penalties on the prepayment method. Calculate both sides before choosing the right way.

2.      During prepayment, your liquidity factor might take a toll. Check your fund before using it.

3.      Are you familiar with opportunity cost? You might invest the prepayment money and take out profit from that. Weigh these two to find the best one for you.

4.      There are some areas where you will lose tax benefits if you prepay your loan. This is not desirable. We need to think about these matters before taking any step.

Tricks That Will Help You

As we are done with all the basics, the time is right for some tricks that might help you.

a.      Check the charges behind loan prepayment so that we can be careful about choosing the perfect loan prepayment method.

b.      If you have taken high-interest loans, then prepayment would be your best choice.

c.       Planning of your finances is important. It might take some time and effort but choose a professional for help.

d.      Don’t force something that can cut off your tax refunds and relaxation.

e.      Partial prepayment is a valid choice that anyone can have.

Try out these methods and choose the best prepayment option. It will help you get out of the debt trap and make you financially secure.