Advantages of Prepaying Your Personal Loan

For most of us, the thought of prepaying a personal loan may only seem far-fetched, like an almost impossible proposition. Living within your means has become tough because no matter how careful you are with planning your finances, there’s always that one time where you find yourself suffering from a cash crunch. This leads to two popular outcomes – either you drop all your pride and ask your family/friends for a little extra cash, or you decide to take out a personal loan.

Now, I know what you’re thinking. It’s easy enough to get a personal loan today, but paying it off is tough. You’ve got to plan and set aside funds for it, and budget it as a real expense. Doing so puts a strain on your monthly finances. In such a scenario, how does one prepay a personal loan? Well, you can do so if you come into a large sum of money via a bonus or a pay hike. In case you’re not convinced, we’ve listed out three advantages of prepaying a personal loan. Read on:

1. It Impacts Your Credit Score Positively-

 Prepaying an instant personal loan has a definite positive impact on your credit score. When you make payments towards your loan that are over and above the stipulated monthly EMIs or make one extra payment, this reflects your strong financial standing and increases your chances of getting future loans at favourable terms and conditions. Please note that your credit score might not immediately change, and it might take a month or two to get updated. Once that happens, you can see the increase for yourself. 

2. You Save On Interest Payments-

Whenever you take out a personal loan, the main way your bank makes money is through interest payments. So, it is obvious that you save a significant amount of money on interest when you prepay your personal loan. However, things can get a little tricky here. Your bank may have certain prepayment penalties in place to help recover their losses vis-à-vis interest payments. So, you need to check up on the same before you prepay your personal loan. Don’t worry, this is a standard practice everywhere, whether you apply for an instant personal loan in Mumbai or Hyderabad.

3. It Offers Flexibility -

When you prepay a loan, you get to choose how it impacts your EMI schedule. You can either let your EMI amount remain the same, or you can let it reduce while keeping the repayment tenure constant. You should choose what to do based on your own unique financial standing and your long-term financial goals, but many people choose to reduce the overall repayment tenure of the loan by increasing their monthly EMI amount. It does make sense because you finish paying your loan faster.


In Conclusion

 The above three points do list out the benefits of prepaying an instant personal loan but remember to take such a step only if you’re able to afford it. Look into any possible prepayment penalties that you may have to pay and the impact it will have on your financial standing before you do so.


             







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