Is it a Good Idea to Prepay a Personal Loan?

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Personal Loans are a blessing for individuals requiring urgent funds for various reasons. While securing a personal loan, the borrower must have a plan for repayment to the lender. Usually, borrowers take their time and repay the borrowed amount in small EMIs throughout the given tenure. Sometimes, borrowers might decide to prepay a personal loan, which means paying the entire loan before the given term. While some people aren’t aware of the prepayment facility, some consider it of little use. Contrary to this belief, loan prepayment has its benefits. However, loan prepayment may not be as good for you and may have some disadvantages. Read on to understand the pros and cons of loan prepayment in India.

Understanding the pros of loan prepayment

A lender that offers the best personal loan in India also provides a prepayment facility. Fullerton India is a reputed lender that offers all the loan options to individuals. Here are some benefits of loan prepayment in India:

1. Lower interest payment

Every EMI will consist of a part of the principal loan amount and the interest component. Let us say the interest charge is 8.50% per annum. It means the borrower will pay 8.50% of the remaining principal amount throughout the loan tenure. As a result, the borrower pays more interest throughout the personal loan tenure. With loan prepayment, the borrower will pay the remaining principal balance at once. Since the principal balance is zero, the interest charge automatically won’t be there. Personal loans are unsecured and come with high interest for borrowers. If you have extra money to prepay the loan, why pay more interest throughout the loan? Loan experts always suggest prepaying costly loans and saving on interest.

2. Reduction of debt

A reputed lender will offer a personal loan with affordable/payable EMIs. However, there is always a mental pressure of loan EMIs on the borrower. The borrower must ensure sufficient funds in the account to pay the EMI. Also, a borrower must navigate between monthly EMIs and living costs throughout the loan tenure. This mental pressure can be removed by prepaying a personal loan. EMIs are a liability and reduce the disposable income of the borrower. Why not choose personal loan prepayment and remove the debt?

3. Improvement in the credit score

Besides reducing the overhead debt, loan prepayment also improves your credit score. Personal loans are unsecured and have a bigger impact on the credit score of borrowers. If a borrower misses a few personal loan EMIs, the credit score can go down significantly. With loan prepayment, one can boost the credit score significantly. However, it is crucial to note that the credit score can also be boosted throughout the loan tenure. If a borrower pays all EMIs timely throughout the loan tenure, the credit score will rise. If you want an improvement in your credit score, personal loan prepayment is a good choice.

Understanding the cons of loan prepayment

There are a few disadvantages of loan prepayment in India, like:

1. Payment of a lumpsum amount

A personal loan is divided into EMIs to reduce the financial burden on the borrower. A borrower can easily pay the pocket-friendly EMIs from their monthly income. When someone decides to prepay a part of the loan or the entire loan, it includes a

lumpsum amount. As a result, a greater amount of money will go to the lender from the hands of the borrower. If paying a lumpsum amount to the lender affects financial stability, one must refrain from prepaying the loan.

2. Foreclosure charges for prepayment

Even the best personal loan in India comes with additional charges/fees. When prepaying a personal loan, the borrower must pay the foreclosure charges. When you close a loan before its tenure, the lender’s interest income will decrease. Since the lender will no longer earn interest from the borrower, they apply a foreclosure charge for prepayment. Even if the borrower prepays a part of the loan or the entire loan, the foreclosure charge (prepayment penalty) is added.


If someone has extra money, they must go for loan prepayment. However, one must be ready to pay the foreclosure charges for prepayment. Don’t forget to consult your lender about all the charges before securing a personal loan. Learn more about personal loans with Fullerton India!

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