The Benefits Of Prepayment On Loans And How To Do It Effectively

Discover the advantages of loan prepayment and learn effective strategies. Save money and become debt-free sooner. Start prepaying your loans today!

24 May,2023 12:55 IST 3885
The Benefits Of Prepayment On Loans And How To Do It Effectively

Personal loans are unsecured loans that do not require any collateral or security. It can be used to fund purchase of costly assets like house, a dream wedding, a vacation, medical emergencies etc. They do not have any predefined use assigned to them. Thus they can be used for any purpose. They do generally have a high rate of interest but rate of interest can be negotiated depending on the credit score of the borrower.

What Is A Loan Prepayment?

Loan prepayment is a facility offered by the lending banks and financial institutions allowing the borrower to pay the outstanding loan balance either in part or full. When the prepayment is done with the full balance amount the loan is foreclosed. Prepayment amount is generally higher the monthly repayment amount or EMI. Loan prepayment is done before the maturity of the loan tenure.

Benefits Of Loan Prepayment

There are many benefits of loan prepayment such as reducing your debts, improving your credit score etc. Some of the benefits are listed below:

• Go Debt-Free –

Ensure you take personal loan according to your repayment capacity. Prepayment of your loan in part or full amount will reduce the burden of debts on your financial statement. It will make you tread on the path where you can become debt-free soon and ultimately attain financial independence. You will have more income in your hands to dispose as per your wish.

• Improve Credit Score –

Prepaying your personal loan will be displayed in your credit report. This will have a positive impact on your credit score. A higher credit score, a clean credit repayment history and an impressive credit report will help you avail loans in future with a lower rate of interest and favourable terms.

• Save Up On The Interest Amount –

The major part of repayment amount of a loan is its interest amount. If you prepay the loan amount partially or in full, you will save on the interest amount incurred on the principal. Once the loan is foreclosed, you can use the saved amount to invest in other financial instruments like fixed deposits or mutual funds. In some cases, few lenders charge a nominal fee for prepaying the loan amount. The fee is smaller in amount as compared to the total interest amount that will be paid on the principal throughout the loan tenure. This fee can be negotiated to be removed from the additional charges.
Zaroorat aapki. Personal Loan Humara
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• Reduce Your Debt Burden –

There may be financial constraints because of which you may not be able to prepay the entire amount of the loan. In such circumstances, you should make partial prepayments from any extra income or money that you have. Making partial prepayments will gradually reduce the principal amount and the interest amount. The tenure of the loan will also shorten. Thus, you will not become debt-free in one go but will certainly reduce your debt burden.

How To Prepay The Personal Loan

Many lenders such as banks and NBFC set a lock-in period after sanctioning the loan. Lock-in period is the period in which the borrower cannot prepay the loan amount either partially or fully. This lock-in period differs from banks to banks. It may vary from six months to one year. Nowadays, some lenders are ready to forego the lock-in period. As a borrower you should consider the lock-in period and its terms and conditions before availing a loan from the lender.

Some lenders may charge a prepayment fee from the borrower. Before making a prepayment you should calculate the actual benefit you will get. The benefit depends on the prepayment fee, the outstanding loan amount and the remaining tenure of the loan. If the prepayment fee is less than the total outstanding interest outgo amount then you should go ahead with closing the loan by making a prepayment.

Follow the steps given below to close your loan account before its tenure matures.

• Reach out to your lender
• Submit the cheque to close your personal loan
• The bank officials will verify the details before closing the loan
• Once the loan is closed, make sure you collect the concerned documents like NOC


Though personal loans helps you with your financial crisis but you should not consider it as your extended pay check. You should always restrict your loan amount according to your repayment capacity. Prepaying the personal loan definitely has benefits like improving your credit score, going debt-free and reducing your debt burden. Before prepaying the loan, you should calculate your benefit and the prepayment charges, if any. Take an informed decision about making the prepayment. Ensure that the benefitted amount is invested and you actually benefit from the prepayment.

You can prepay your loan with minimal hassles by applying for a personal loan with IIFL Finance. We provide access to swift, low-interest, and flexible personal loans. Moreover, you can use the digital services of IIFL Finance to eliminate the tedious paperwork involved in loan processing.

Zaroorat aapki. Personal Loan Humara
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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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