While applying for a loan, have you come across the term “partial payment of personal loan?” What does it mean? Let us find out!
As you apply for a personal loan, the repayment process can feel difficult. However, there is a smart trick to simplify this journey. You can ensure partial payment of the personal loan amount. When you choose a part-payment personal loan, you are able to minimize your debt while saving on the interest and gaining more confidence about your financial future.
Let us understand what is part-payment personal loan and how it works for you.
Understanding Partial Payment of a Personal Loan
Partial payments of a personal loan, also known as partial prepayments, involve paying the loan amount partially toward the loan principal along with the standard EMI amount. Usually, these payments are made before the due date of the next EMI.
In comparison to full payment of the loan amount, where you end up paying off the entire balance of the personal loan, part-payment personal loans minimize your outstanding principal to a great extent. In turn, this lowers the future EMIs or minimizes the loan tenure. Therefore, it serves to be a great strategy when it comes to managing your debts effectively. This also helps you save on interest costs in the long run.
How Does Partial Payment Work for Personal Loans?
When you choose the option of partial payment of the loan amount, it allows you to pay off a portion of the outstanding principal amount before the scheduled due date. In most cases, this payment is larger than the EMI amount. However, it tends to be smaller than the entire loan amount.
When you ensure a partial payment, it minimizes the principal. In turn, the interest rate is also lowered on the remaining loan amount. Due to this, the future EMIs also decrease or the loan tenure is shortened. This will ultimately depend on the lender’s policies.
Key Benefits of Making Partial Payments on Your Personal Loan
Some benefits to look out for are:
1. Lower Tenure or EMI: With partial payment, you are provided the financial preference of choosing a short loan repayment tenure or a reduced EMI amount.
2. Minimal Interest Outflow: Once the principal amount is lowered, partial payment of the personal loan minimizes the total interest paid during the tenure of the loan repayment.
3. Independence from Debt: Partial payment of the loan amount also minimizes your overall debt burden. In turn, this offers you more financial freedom.
4. Better Financial Flexibility: With partial payments, you are able to minimize your debt obligations without the need for full foreclosure. This saves your liquidity.
5. Positive Effect on the Credit Score: When you are making a hefty partial payment, it depicts financial responsibility. Therefore, this process improves your credit score in the long run.
Is Partial Payment Better Than Full Prepayment?
The choice between a partial payment and a full prepayment will ultimately depend on your financial situation and goals. With partial payment, you are able to minimize the principal amount of the loan. On the other hand, with a full prepayment, you are able to close the loan completely and future interest payments.
Eventually, if you have extra funds and want to eliminate your debts early, full prepayment can be a great choice. However, if you wish to access funds constantly, you can choose partial payment for a more balanced strategy.
How Does Partial Payment Affect Your Personal Loan Interest?
When you make a partial payment of the personal loan, it can reduce the interest rate significantly in the long run. By paying off the portion of the principal beforehand, the remaining loan amount is minimized. This implies that less interest is charged on the decreased amount.
Typically, interest on a personal loan is calculated on the outstanding principal. Therefore, when you lower the principal with a partial payment, the lender will charge interest on the smaller amount. This results in reduced interest costs.
Eligibility Criteria for Making Partial Payments on Personal Loans
The exact eligibility criteria for partial payments on personal loans will vary depending on the lender. Typically, most lenders require that a borrower makes at least some months of regular payments before the partial payment. Moreover, lenders also specify a minimum amount for the partial payment to make sure that it affects the loan balance positively.
Along with these criteria, borrowers should also ensure that their loan account is in a good format. There should be no loan defaults or overdue payments. Some lenders might also charge a fee for making a partial payment.
Common Mistakes to Avoid While Making Partial Loan Payments
When you make partial payments for a personal loan, you should avoid some common mistakes to make sure that you are making the most of your personal loan.
Do not assume that partial payments will minimize your EMIs automatically or decrease the loan tenure. Discuss the same with the lender. Do not miss out on checking for charges, if any. Some lenders might impose a fee on such payments. Do not overlook the terms & conditions of the personal loan when it comes to making partial payments.
Conclusion
Ensuring partial payments of the personal loan is a strategic decision to minimize the outstanding loan balance and save on interest. This can be effectively managed through stashfin, allowing borrowers to make partial payments without committing to a full prepayment. With a partial payment, you can reduce the monthly EMIs or shorten the loan tenure.
Frequently Asked Question
Does partial payment reduce EMI or loan tenure?
With a partial payment of the loan, you have the option of either reducing the EMI or the loan tenure. You should discuss the available options with the lender.
Are there any charges for making a partial payment on a personal loan?
Yes. Some lenders might charge a fee when you make a partial payment of the personal loan. This is true when the payment is done before subsequent EMIs.
How many times can I make partial payments on my loan?
The number of times you can ensure a partial payment on the loan will depend on the lender’s policies. Some lenders might allow multiple partial payments. Some other lenders might have certain restrictions.
Can I make a partial payment anytime during the loan tenure?
It will ultimately depend on the lender’s policies. Several lenders allow multiple partial payments during the entire loan tenure. However, there can be certain fees associated with this case.