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How to use pre-partial payment of personal loan to your advantage?

Pre-partial payment is a great way to manage your debt and save money. Here's how!

How to use pre-partial payment of personal loan

If you have a personal loan, you likely signed up to make monthly payments over a set repayment term. But did you know you may have the option to pay it off entirely or partially faster? While early repayment can accelerate debt freedom, make sure you grasp the whole concept first.

This article provides a comprehensive guide to prepaying personal loans, from defining full and partial pre-payment to outlining potential benefits like interest savings and improving credit scores.  

Whether you want to pay off your loan in full or make extra partial payments along the way, discover how prepayment works so you can make informed financial decisions. This article will help you comprehend the terms and conditions better. 

What is the prepayment of a personal loan?

Personal loans have terms that range from 1 to 5 years for the payback period. Some people pay off their loans over the full term, while others would rather pay them off early, and some even make partial early payments.

Prepayment is a feature that lets you pay back a loan early, entirely or in part. Most banks will let you pay off the principal amount ahead of time, after a year. You may significantly reduce your interest payments by following this payback plan.

There might be a small fee for paying off the loan early, but it depends on the lender’s policies. When people pay off their loans early, they save the funds that they would have otherwise spent on interest. This is an opportunity for anyone who wants to spend or reinvest their savings as well.

Also read: Decoding finance: A millennial’s guide to money management

What is the pre-partial payment of a personal loan?

A borrower might pay down a portion of their loan when they have additional funds that aren’t enough to cover the entire principle. The borrower puts the money into a loan account to lower the total debt. This results in a decrease in interest and EMIs. Remember that this repayment plan is only available for large upfront payments.

When you make a partial payment, a portion of the principal will be subtracted from the total amount due. Once you’ve cut down on your interest costs, the amount of money you save will depend on when and how much you pay each month. However, partial payments are not ideal if the bank imposes additional fees for them. 

Partial prepayment of EMI calculation

One way that might help you figure out the benefits of paying off your loan early is to understand the prepayment calculation. You can easily find online part pre-payment calculators; to use one, type in the loan information, including the loan amount, interest rate, term, and desired pre-payment amount.

Additionally, read your loan paperwork carefully to learn how to prepay your loan in instalments. An excellent rule of thumb is to loan money from the bank with the most lenient terms and services.

Benefits of pre-partial payment of a personal loan

Become debt-free more quickly:

Once you borrow money to pay for essential things, it’s time to pay it back. But your loan may lead to serious money problems if you don’t handle it carefully. Personal loan EMIs also eat up your monthly funds. 

It is wise to pay off your total loan if you are expecting additional funds. A small fee may occur if you pay off your loan early. Although there is a prepayment charge, it is worth it since prepayment allows you to be debt-free before the loan’s repayment term ends. 

Also, you won’t have to worry about loan payments taking money out of your savings anymore.

Also read: How can financial literacy month help you achieve your money goals?

Fewer interest payments with prepayment:

One of the most crucial factors when prepaying a loan is the lock-in term. There will be a grace period when the borrower cannot pay off the loan in whole or in part before the agreed-upon term ends. 

But consider paying off your debt in whole or in part before the lock-in term ends, if you may do so with additional funds. By doing this, you may significantly reduce the interest that would otherwise be applied to the loan amount you borrow. 

However, there is a prepayment charge associated with prepaying a loan, but it’s still quite reasonable when weighed against the amount of interest you’d save.

Minimise debt with partial prepayments:

As simple as it sounds, partial prepayments can help you pay off your debts. Reducing your debt load is possible with this approach.

It also reduces the total amount of interest charged to your account. If you want to pay off your loan early, it’s best to do so in the first few years.

Get a better credit score:

You may eliminate or significantly reduce your loan debt with a single prepayment, whether in whole or in instalments. Because a person’s credit score is directly proportional to their debt amount, this will improve that score. 

Reducing or paying off the entire loan, whether partially or in full, improves your credit score, increasing your eligibility for future loans. 

Factors to consider before opting for pre-payments

Keep a few considerations in mind when paying partial payments on a personal loan.

To find out whether there are any costs involved with returning the loan early, get in touch with your lender. Partial payments may not be worthwhile if there is a penalty for paying off the loan prematurely.

Additionally, be sure that any additional payments you make go towards the principle of the loan and not simply the interest. You may pay the debt off faster with this.

Also read: How to do tax planning for high-income earners? 


Prepayment provides personal loan borrowers with the option to repay debt ahead of schedule. This can accelerate debt freedom and minimise expensive interest charges. 

With a complete understanding of how prepayment works, borrowers can make informed choices about fully or partially repaying personal loan balances early.

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StockGro Team

StockGro is India’s first and largest ‘Social Investment’ platform aimed at helping you master the art of “Trading & Investment”. Trade, Invest and get rewarded to Learn everything about ‘Investments’ the fun-filled way.

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