A Personal Loan helps meet your urgent financial obligations. However, repaying your loan is essential to avoid the growing debt burden. Planning your loan repayment quickly may also improve your credit score, enabling you to get better-paying loans. This blog lists the top 7 tips to repay your Personal Loan quickly and the benefits of doing so. Read on!
7 Tips to Repay Your Loan Quickly
The 7 tips to repay your Personal Loan faster are:
1. Foreclose Your Loan
Loan foreclosure can be one of the quickest ways to repay your loan if you have enough funds. After completion of the lock-in period, you can choose to foreclose the Personal Loan anytime. While foreclosing your loan may incur minimal charges, it helps to save money on additional interest costs.
2. Opt for a Shorter Repayment Tenure
Short repayment periods have higher EMIs, but the interest amount payable is comparatively lower. This, in turn, can help you close your loan early. Moreover, you can effectively manage your credits with a shorter repayment tenure. This can also lead to responsible borrowing, helping you further improve your credit score.
3. Consider Debt Consolidation
Debt consolidation allows you to club all your current debts into one payment. Opting for debt consolidation can be ideal to ensure you do not fall behind on your loan payments. Instead of making several payments at various interest rates, with a debt consolidation loan, you can make a single payment at fixed interest rates.
4. Personal Loan Balance Transfer
Another way you can quickly repay a Personal Loan is by opting for a Personal Loan balance transfer. This process allows you to transfer your total outstanding Personal Loan from one lender to another, helping you save on additional interest costs and reduce your overall financial burden.
With a good credit score, you can access better loan terms, such as lower interest rates and loan amounts. This option is more suitable if you pay a high-interest rate on your existing loan.
5. Prioritise Your Repayments
Defaulting on your loan repayments can create a financial burden on you and will show you as a risky borrower to your potential lenders. It is highly recommended to set payment reminders or opt for an auto-debit/ECS facility to avoid such events. This will help to avoid payment delays and penalty charges for that cause. Moreover, timely repayments also minimise your overall borrowing cost by preventing the accumulation of interest payables.
6. Avoid Taking New Debts
While repaying your Personal Loan, make sure not to avail of any new debts. New debt or accumulating credit balances during the repayment period can make it challenging to repay your loans quickly. Moreover, applying for too many loans simultaneously can affect your creditworthiness, and potential lenders may perceive you as a potential risk.
7. Negotiate Payment Terms with Lenders
Under unprecedented circumstances or financial distress, you should talk with your lender to reduce the interest rates on your Personal Loan. You may give your lender a valid reason for proceeding with the request. You may also discuss the possibility of flexible repayment terms with your lender to make credit management convenient for you.
Also Read: The Ultimate Guide to Comparing Personal Loan Interest Rates
5 Advantages of Repaying Your Loan Faster
The top 5 advantages of repaying loans early are mentioned below:
- Save interest on loan.
- Improved financial planning.
- Increase in Credit Score.
- Reduced Stress.
- Avoid Late Payment Charges.
What is the Pre-Payment Penalty on a Loan?
A pre-payment penalty on a loan is an additional fee charged by most lenders when you close your loan account earlier than the conclusion of the term. The penalty amount is calculated based on your outstanding loan amount and is expressed in percentage.
Depending on the terms and conditions of a lender, the pre-payment penalty may range between 2% and 5%. However, you can prepay your loan without paying additional charges by opting for a Personal Loan from a leading financial institution.
Also Read: Why is a Personal Loan One of the Best Short-Term Loans?
Documents Required for Loan Foreclosure
The documents required for loan pre-closure are mentioned below:
Documents to be Submitted to the Lender
- Identity Proof: Aadhaar card, PAN card, voter ID card, driving license.
- Address Proof: Rent agreement, utility bills, or passport.
- Pre-closure Amount: Cheque or demand draft for pre-closure.
- Loan Statement: Statement showing the EMI payments made so far.
Documents to be Collected from the Lender
Following are the documents that you need to collect from your lender after Personal Loan pre-closure:
- Receipt of pre-closure payment
- No Objection Certificate (NOC) for Personal Loan Closure
- Personal Loan closure certificate
- Payment due certificate
Impact of Early Loan Closure on Credit Score
Early closure of your Personal Loan does not directly impact your credit score. However, one of the factors considered for credit score calculation is credit history. Thus, early loan closure may positively impact your credit score as it showcases your commitment and capability to repay your debts on time. Moreover, lenders will also see you more favourably as a borrower, increasing your chances of loan approval.
To Conclude
Repaying your Personal Loan early can help improve your creditworthiness. By effectively managing your finances, you can avail better loan terms from potential lenders. Foreclosing loans, shorter repayment tenures, debt consolidation, loan balance transfer, and prioritising repayments can help you repay your Personal Loan quickly.
Obtaining a Personal Loan from leading financial institutions like Poonawalla Fincorp can help you avoid paying additional charges on pre-closing your loan account. Additionally, you can get a Personal Loan tailored to your financial needs with minimal documentation and competitive interest rates.
FAQs
- What is an ideal CIBIL score for a Personal Loan?
A score above 750 is ideal for obtaining a personal loan. However, an excellent score of 900 can get you access to better loan terms from top financial institutions, such as higher loan amounts, attractive interest rates, and flexible repayment tenure.
- Can I get tax benefits for paying interest on a Personal Loan?
No, there are no tax benefits for paying interest on a Personal Loan.
- What is the disadvantage of repaying a Personal Loan early?
Repaying your loans in advance may require a prepayment penalty in some instances.