InvestorQ : Can I pay my loan in advance via small payments?
Ashoka Patkar made post

Can I pay my loan in advance via small payments?

Manisha Mehta answered.
5 years ago

Yes, you can and in fact, you must!

Paying off your loans in small advances while also continuing to pay your regular EMIs is called prepayment of a loan. Prepayment can be done for any loan- home, car, personal, etc.

What prepayment of a loan does is that it reduces your outstanding principal amount. As the interest gets calculated on the lower amount (as you have prepaid some amount), the resultant outgoing interest reduces.

So, whenever you get any Diwali bonus or any performance bonus, use the extra cash to pay off your loan amount as it will be beneficial in the long run.

However, ensure you communicate your wish to prepay your loan with your bank because some banks charge a prepayment penalty to those customers who pay off their loans before their tenure. This is because the bank loses out on extra interest payment which it could’ve go had you paid of your loan in the tenure as decided previously.