InvestorQ : Can I prepay my personal loan?
Abigail Ghoshal made post

Can I prepay my personal loan?

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priya Shah answered.
3 years ago
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Yes, you can prepay your personal loan.

A personal loan, like any other loan, attracts an interest on it. A number of times, the interest amount starts straining customers’ monthly budgets and affects their financial goals. This is why borrowers, such as you, choose to prepay their loans if their finances allow them to do so.

Do note that most banks do not allow you to prepay a loan if you haven’t made 12 equated monthly instalments (EMIs) before prepaying the loan amount.

However, before you make a part payment, do ask your bank/non-banking finance company (NBFC) if it levies any charge on prepayment of loans. Although this might seem stupid as it is your own money that you are repaying, for the banks, the quicker you repay the loan amount, the lesser they earn from you in interest amount.

Pre-payment charges

Most banks levy pre-payment charges ranging between 1% and 5% on the outstanding principal amount. While most banks levy flat pre-payment charges if you choose to prepay your loan, there are a few banks that may levy pre-payment charges at different rates depending on the year in which you choose to prepay.

For instance, ICICI Bank levies a pre-payment charge at flat rate of 5% per annum of principal outstanding. On the other hand, the HDFC Bank charges 4% per annum of principal outstanding in the second year of the loan tenure; 3% per annum of principal outstanding in the third year of the loan tenure and 2% per annum of principal outstanding in the remaining time of the loan tenure.

Pre-payment charges of some popular banks

Pre-payment charges of some popular banks

Bank

Pre-payment charges

HDFC Bank

13-24 months – 4% of principal outstanding

25-36 months – 3% of principal outstanding

>36 months – 2% of principal outstanding

ICICI Bank

5% per annum of principal outstanding

YES Bank

13-24 months – 4% of EMI repayment

25-36 months – 3 % of EMI repayment

37-48 months – 2% of EMI repayment

>48 months – Nil

Kotak Mahindra Bank

Up to 4% on total principal outstanding at the time of calculating the amount for full and final settlement of account; plus, interest for the ongoing month.

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