Personal Loans are one of the best financial products that you can avail of to fulfil specific goals and requirements that require substantial funds. Whether it's for going on vacation, covering higher education costs, or meeting emergency expenses, a Personal Loan is the easiest way to fund all kinds of immediate expenses.
Having said that, you also need to have a precise understanding of how to repay your loan quickly. Planning your Personal Loan repayment strategy wisely not only saves valuable time but also improves your overall financial position.
In this blog, we’ll explore how to repay a Personal Loan early through the top 5 repayment strategies listed below.
Loan foreclosure is one of the fastest ways to repay your Personal Loan. If you have enough funds, you can choose to foreclose your Personal Loan before the loan term ends and become debt-free quickly.
You can opt for loan foreclosure as soon as the lock-in period of your loan is over. Even though you may incur minimal charges, foreclosure of your loan allows you to save on additional interest costs and reduces your financial burden. However, before you do, it is important to ensure that you have enough savings and can comfortably foreclose the loan without straining your finances.
If you have witnessed sudden financial gains in the form of a career promotion or other financial returns, you can customise your Personal Loan repayment terms. Doing so can also help you to close the loan early.
It is important to note that changes in the repayment tenure must be agreed upon by both you and your lender. The updated tenure can impact the EMI amount as well as the interest rate. So, make sure that the new Personal Loan repayment terms align with your overall financial goals.
If you have multiple debts, including Personal Loans, it can prove challenging to repay your monthly EMls on time. In such cases, it is best to opt for a debt consolidation loan to ensure that you do not fall behind on your loan payments too often.
You can combine all your debts into a single unit with a debt consolidation loan. This results in a convenient repayment structure at a fixed interest rate, as opposed to making multiple payments at different interest rates. In most cases, you will pay a relatively lower interest rate on your monthly instalment with a debt consolidation loan, making it easier for you to better manage your finances.
You can also opt for a Personal Loan balance transfer to repay it quickly. Under this facility, your previous dues are completely closed. You may also get a higher loan amount approved at a better interest rate.
This makes sense if you are paying a higher interest rate on your loan and your lender offers you the option to transfer it to a lower interest rate. It also helps if you have a good credit score as it improves your creditworthiness and leads to more favourable loan terms.
The most important thing is not to miss a single EMI payment on your loan. You can opt for an auto-debit/ECS facility, which is provided by most lenders. Always ensure that your bank account is adequately funded to manage the payment. Any delay in paying the EMI will attract a penalty charge, and insufficient funds in your account will attract a bounce charge, increasing your total borrowing cost. So, embrace automation to manage your Personal Loan repayment and clear your dues as soon as possible.
If you close your loan earlier than expected, most banks charge a prepayment penalty. The penalty amount is calculated as a percentage based on the existing loan balance or the loss of interest to the lender due to pre-closure. Generally, the pre-payment penalty ranges between 2% and 5% of your loan amount. The exact fee may vary between lenders.
Remember that all the details regarding the prepayment penalty and the terms that apply to this penalty are described in detail in your loan agreement. Make sure you read all the agreements thoroughly before signing them.
There are two ways in which you can try to avoid paying the prepayment penalty. First, look for a lender that doesn't charge a penalty for pre-closure. Second, choose a lender that allows you to pay off your loan penalty-free after a specific point in the tenure.
Certain documents need to be exchanged between the lender and the borrower in case of loan pre-closure. Make sure you have all these documents with you to prove that you have repaid your loan.
Documents to be submitted to the lender:
Documents to be collected from the lender:
Note: You may want to ask your lender for an accurate list of documents required as per their process.
While it has become common practice to meet high-value consumption with the help of Personal Loans, it is also essential for you to know how to repay your loan in simple and easy steps. Ultimately, the aim is to reduce your debt obligation while building your financial stability. Therefore, you can opt for the top 5 strategies mentioned above to repay your Personal Loan quickly and become debt-free sooner rather than later.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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