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Is Pre-paying a Personal Loan a good option?

By Finserv MARKETS - Feb 26,2019
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Pre-Paying a personal loan

Personal loans are quite common in today’s society; it helps you in a situation when you need a lot of money in a short period. It is the type of loan that most salaried and employed people apply for, for various personal expenses.

People avail a personal loan for repaying various expenses such as marriage loans, education in foreign countries, buying a house or even for holidays or travel, medical bills.

The main reason why personal loans are so popular is the lack of security, reduced collateral and simplified application process. Once your application has been sanctioned and approved, the steps that follow are simple!

Is Pre-payment a good idea?

Personal loans are less expensive than credit cards but, without a doubt, costlier than standard home loans.

So, if you have applied for a personal loan and are considering about the benefits of prepaying it; you must keep the following points in mind.

Be aware of the method of calculation in terms of interest rate for your personal loan. This is important to know because it’ll help you compare the price range of other interest rates and therefore help you choose the best one.

If you apply for a personal loan, you will be given either a flat rate, reducing balance or advance EMI.

In the case of the flat rate methodology, simple and basic interest will be charged to you. So if you take a personal loan of INR 2,00,000 at a flat rate of 15%, your interest is going to be INR 30,000 per year for the tenure of the personal loan.

In the case of the reducing balance option, the interest, as well as the EMI is calculated as monthly installments over the entire duration of the personal loan and then you are charged accordingly. The interest is charged from the outstanding balance. In this way, the Reducing Balance is a cheaper option as compared to flat 10 percent option.

In the case of advance EMIs, the banks, and other lending institutions take 2 to 3 EMIs as a lump sum in advance.

Hence, once you know the different options available, you can make a better decision on which option is best suited for your needs and requirements.

The foreclosure penalty is another important point to keep in mind. You will have to pay 4-5% of the loan amount while foreclosing your personal loan; When banks or NBFCs offer you the prepayment option, you must keep in mind that there is no flexibility in terms of partial payments. So, if you want to pay the personal loan amount before the designated time period, you will have to pay the entire remaining principle as well. These days, leading NBFCs like Finserv MARKETS, offer zero foreclosure charges as a part of their personal loan offering. Hence, making the process is easy and less cumbersome for you!

Your final decision must be made after having taken into account all the options mentioned above as well as the interest rate offered by your financial institution or NBFC

“Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!”


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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522