During any financial crisis, Personal Loan becomes a major relief for the people. People these days, prefer to choose Personal loan prepayment, as they think it will be far better for managing incurred outstanding loans before the due date. However, it has many pros and cons that every borrower should know while taking this step. On the one hand, where this action will help you improve your CIBIL score and low interest rate, on the other, it may impact your asset liquidity, a prepayment charge or foreclosing charge etc. If you are choosing a personal loan in your area like “Personal Loan in Delhi,” then you should know the eligibility, and loan repayment process with pros and cons.
Here, in this blog, you will know what are the pros and cons of choosing personal loan prepayment action. Follow all the steps carefully:
Benefits of Prepaying Your Personal Loan
Enhancing Your Credit Score
First and foremost thing, you should know that everyone wants to get a healthy credit score so that he/she can take loans at a later stage. Prepayment of Personal Loans can help you tackle this issue. You will get an opportunity to enhance your credit score.
Loans at a Low Interest Rate in Future
Prepayment of your loan will automatically make a good impression on your lender and thus increase your credit score. This helps you in taking other loans in future at a very good and low interest rate. So, prepayment of loans may be good sometimes.
Saving the Costs of Interest on your Loan
It’s not a good solution to wait for the end to repay your loans. It will increase your loan interest. On the other hand, if you choose prepayment of your loans, your outstanding amount will be decreased automatically, which leads to the minimization of your instalments on the total interest. Thus, it will be far better to pay your loans as soon as possible.
A Healthy Ties with Your Lender
Prepayment of your loans will help you maintain good ties with your lender. It will automatically help you in the long run when you reapply for another such loan in future. Keeping healthy ties with your lender is very necessary. For instance: If you want a Personal Loan in Delhi, then you need to approach a lender or bank situated in Delhi. Then, try to make a healthy relationship with your bank or lender in order to get the benefit in the long run.
Disadvantages of Prepayment of Loans
Let’s read the cons of prepayment of your loans.
Limit The Financial Stability
Paying the complete outstanding amount or a part of the same can lead to the limitation of your financial stability. So, it is always considered not to take personal loan prepayment very lightly.
It May Affect Your Asset Liquidity
In case, you are planning to use your liquid assets for the loan prepayment, be very careful. You may face several financial issues if you have paid the total amount for your loan. You may face a financial crisis in future.
Partial Prepayment Restrictions by Lenders/Financial Institutions
Some banks and lenders follow restriction policies in prepayment of all types of loans be it secured or unsecured loans. Lenders only allow you to prepay a certain amount or percentage in a particular financial year.
Legal Notices
If you go for prepayment of your loans for the outstanding balance, you may face several notices from your bank or lender. It is recommended to avoid the same if you want to live a happy life without risks. Notices will give you mental tension as well as financial crisis.
The Foreclosure Charges
An additional amount will be charged by the banks if you take prepayment action without asking them in advance. This charge is known as “Foreclosure charges.” You don’t want to pay additional charges to your banks as you are already paying interest on your loan amount. So, talk to your banker or lender and choose the best option which will help you in the long run.
Mental Tention
If you have chosen the prepayment option for paying off your debts before the due date, you may face several crises in the future. Therefore, if you want to avoid mental tension in your life to tackle a financial crisis at a later stage, avoid doing prepayment.
Summary
Personal Loan is one of the best ways to deal with financial crises or any emergency. It may be a medical emergency, debt consolidation, planning an instant journey, marriage and many more. These days, people use it to repay loans, but they may create issues. It has some benefits too like early repayment, getting rid of loan repayment at a further stage, creating a healthy CIBIL score and so on. The documents related to Personal loans should be read carefully.
