What all to factor in when prepaying L&t finance personal loan


Personal loans are a credit option that borrowers must try to prepay whenever possible due to their high personal loan interest rates and relatively higher EMIs.

And yes, although paying off personal loans early is generally a good idea, borrowers should still perform a thorough cost-benefit analysis to ensure they are making the best decision at the right time.

So, for your better understanding, we’ve outlined the benefits and drawbacks of paying off personal loans early through prepayment.

Advantages of paying off L&t finance personal loan early

Cuts down on interest costs

The main benefit of prepaying a personal loan is that you can avoid paying the high personal loan interest rates.

But many borrowers erroneously believe that only prepayments made at the beginning of the loan term, and not at the middle or end, can result in interest cost savings. In reality, older people can still access interest-bearing savings. The interest savings from personal prepayment can be calculated using the L&t finance personal loan emi calculator. However, remember to account for prepayment fees and additional expenses, if any, and choose prepayment only if it generates a net saving.

Reduces the ratio of EMI to monthly income

Lenders prefer to work with borrowers whose combined monthly installments (EMIs), which include payments on both their old and new loans, fall between 50% and 60% of their monthly income. Therefore, if current personal loan borrowers intend to borrow more than the stated ratio when applying for a new loan, they can increase their loan eligibility by prepaying their personal loan and bringing their monthly loan repayment obligation within 50% to 60% of their monthly income. By calculating the impact of partial loan prepayment on your EMI using a personal loan EMI calculator, you can determine your EMI to income ratio. You can even call the personal loan customer service line if you have any questions about prepayments.

Lowers ratio of unsecured debt in credit mix

The proportion of active secured and unsecured loan facilities makes up one’s credit mix. When determining a person’s credit score, credit bureaus take their credit mix into account. Credit bureaus also tend to award such borrowers higher credit scores because lenders typically prefer lending to those who have a higher concentration of secured loans in their loan portfolio, such as home loans, car loans, and loans secured by property. Paying off personal loans early will lower the proportion of unsecured loans in your loan portfolio because they are unsecured, which may improve your credit score. If you have any questions regarding the financial effects of prepayment, contact the L&t finance personal loan customer service.

Disadvantages of paying off personal loans early:

Possibility of prepayment penalties

The RBI prohibits lenders from imposing prepayment fees on loans with floating personal loan interest rates. However, lenders are free to impose prepayment penalties for early repayment when loans are taken out at fixed interest rates. Because of this, the majority of lenders impose prepayment penalties on early prepayments that can total 5% of the principal owed. Many lenders also prohibit partial prepayment before the borrowers have made a specific number of EMI payments. You can learn more about the prepayment penalties by calling the personal loan customer service number.

Hampers your liquidity

Many borrowers decide to pay off their debt early using investments set aside for important financial goals or emergency funds due to the high personal loan interest rates attached to personal loans. The ability to manage financial emergencies or income loss brought on by a loss of employment, a disability, an illness, etc. could be hampered by doing this, though. If you invested money that was set aside for significant financial goals, you may later need to take out loans with higher interest rates to achieve those unavoidable financial goals. As a result, only prepay your L&t finance personal loan if you have sufficient surpluses left over after subtracting your regular payments for your unavoidable financial goals, emergency savings, and investment returns.

Now that you know the ifs and buts of prepayment, it is equally essential to know the requirements for submitting a PL application

One must pay close attention to a few crucial loan details in order to avoid having their personal loan application denied. Before applying for a personal loan, check your credit score because it is one of the main factors lenders take into account when deciding whether or not to approve your loan application. Try to refrain from posing “tough” loan-related questions and sending multiple lenders your application at the same time. Because they show up on your credit report, hard inquiries lower your credit score.

After considering your ability to pay and the fact that lenders typically favour applicants with emi to income ratios up to 40% or 50%, you should choose the loan tenure whose corresponding EMI keeps your ratio within this range (including the EMI of the proposed personal loan). For assistance with these choices, you can also call the personal loan customer service line.

The terms of personal loans can change significantly depending on the lender offering the loan and the applicant’s credit history, so keep that in mind. This includes the personal loan interest rates , processing costs for loans, loan amounts, eligibility requirements, and other elements. It is now even more crucial for people looking for personal loans to choose the right loan product and compare offers from a range of potential lenders before choosing one in particular. This is because fintech companies are now providing personal loans with smaller loan amounts and shorter terms. Personal loans from banks, NBFCs, and fintech firms enable people to borrow smaller sums of money for shorter periods of time. Utilize useful tools as well, such as the EMI calculator for personal loans.

Last but not least, keep in mind that lenders can offer personal loans with no limitations on how they must be used in the end, ranging from short-term to medium-term loans.

Although personal loans typically range in size from 50,000 to 25 lakhs, some lenders also offer an EMI calculator tool and will approve loans up to 30 to 40 lakhs.

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