When you apply for a loan, money can get tight in some cases. Eventually, the role of a personal loan online should not be to add overall stress. With the help of part payments, you can catch your breath when you need it the most.
What is Part Payment in a Personal Loan?
With the help of a part payment facility in case of a personal loan, you can pay a specific portion of the outstanding loan amount before the due date. With the help of this option, you can minimize the principal balance without the need to completely close the existing loan account.
When you ensure part payments of the loan amount, the total interest rate also decreases, as now you are borrowing less money for the remaining loan tenure.
Most borrowers find the feature of part payments lucrative. This is because they receive extra cash through tax refunds, bonuses, and other options. Rather than spending this amount, when you put this money toward the personal loan payment, it makes your finances easy to manage. The amount that is paid partially is deducted from the principal outstanding. This, in turn, potentially lowers your overall loan tenure.
It is important to understand that while most lenders offer this option, every lender will have specific rules concerning aspects like minimum amounts, timing limitations, and associated fees. Therefore, you should check the terms carefully before you proceed with a part payment of the personal loan.
How Does the Concept of Part Payment Work in a Personal Loan?
When you make a part payment on the personal loan, it reduces the principal amount and still keeps the loan active. As you go ahead with paying extra toward the principal, the lender will recalculate your loan depending on the reduced balance. You can choose if you wish to decrease the EMI amount or reduce the repayment period.
For instance, if you have a loan of INR 1 Lakh for 3 years, you can make an INR 30k part payment to reduce the remaining payments by some months. You can make use of the personal loan calculator to visualize these savings effectively.
Typically, most lenders will require an advance notice before they accept partial payments. Usually, they will ask for a minimum amount like INR 10k or some percentage of the outstanding loan balance. With reliable lenders, you can make part payments easily with the help of the mobile app.
Benefits of Making Part Payments of the Personal Loan
When you add extra money toward the existing loan amount, it tends to offer a wide range of benefits for your financial health.
- Lowering Interest Burden: When the principal balance of the loan amount reduces, it implies that you are expected to pay the interest on a smaller loan amount going forward. A reliable part payment personal loan calculator will determine exactly how much you will save with each part payment.
- Better Credit Profile: When you ensure regular part payments, this depicts that you are highly committed to managing your debts effectively. Most credit bureaus will take note of this responsible financial behavior. Eventually, this improves your credit score through consistent partial payments.
- Minimal Financial Stress: When you actively decrease your overall debt burden with the help of part payments, it delivers psychological benefits in the long run. Most borrowers report feeling less stressed financially after they have made a modest part payment.
- Reduced Loan Tenure: When you ensure part payments consistently, you can pay off the loan period effectively. With this freedom from debt, you can achieve financial stability earlier than anticipated.
Part Payments: Reducing Your Personal Loan Interest Rate
Part payments might not directly change the percentage of the interest rate of the personal loan online. Still, they can reduce the actual interest amount that is expected to be paid over time.
- Principal Reduction: With each partial payment, you can expect a reduced principal balance. As the interest rate is calculated on the remaining principal amount, you can instantly start paying less interest after each payment is made.
- Compounding Benefit: The positive effects tend to compound with each part payment. With every partial payment, you will receive better interest savings. This is because it affects future payments throughout the remaining loan tenure.
- Time Value: The amount that is saved on interest currently will have more value in the long run. When you ensure part payments, you tend to earn returns equal to the interest rate of the loan.
Factors to Consider Before Making Part Payments on the Personal Loan
To ensure that you make informed decisions concerning part payments on the personal loan, here are some factors to consider:
- Minimum Amount: It is important to check if the lender specifies a minimum amount for making part payments on the personal loan. This limit will often range between INR 10k and INR 25k or even a percentage of the outstanding loan balance.
- Timing: Some lenders might impose restrictions on when you can make part payments. Usually, most financial institutions enable these payments after completing at least six months of regular EMI payments initially.
- Fee Structure: You should understand all charges related to part payments to avoid any surprise. Most lenders keep these fees minimal. Still, when you know the fees beforehand, it will help you decide better.
- Financial Priority: You should consider whether ensuring part payments will depict your best financial decision in the current situation. In some cases, it is important to keep emergency savings intact to ensure better financial security than minimizing the loan principal.
Conclusion
The option of part payment of the personal loan amount delivers flexibility to borrowers who wish to reduce the overall debt burden significantly. When you put that extra money toward the loan principal, you are effectively saving thousands in interest charges and gaining financial freedom earlier than planned.
