How Personal Loan Part Payment Works

Last Updated: 14 Oct 2024

Are you looking to save money on your personal loan? Part payment of personal loans is a great way to do this. It can also help you pay off your debt sooner and save further on interest payments. In this article, we will explain what part payment of personal loans entails, how it works and the advantages of using it.

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What is Part Payment?

Part Payment of Personal Loans refers to when borrowers make additional payments towards their loan, which are over and above the regular installment. This helps reduce the principal amount owing, thereby reducing the total amount of interest payable on the loan. Part payment is an effective way for borrowers to manage their debt more efficiently while saving money in the long run. Read on to find out more about how part payment of personal loans works and the advantages that come with it.

Suppose you have a personal loan of Rs. 1,00,000 with a 9% interest rate and repayment tenure of 3 years (36 months). If you pay a part payment of Rs 25,000 after 6 months, your loan balance reduces to Rs 75,000. This means that the unpaid principal amount in the remaining 30 months is reduced from Rs 1 lakh to Rs 75 thousand. Since interest is calculated on the outstanding principal amount every month, by reducing it through part payments, you can save significantly on interest costs over time.

How Personal Loan Part Payment Works?

Part payment of personal loans is a simple process. It involves making extra payments on top of your regular installments to reduce the outstanding principal amount owing on your loan. This can be done either in one lump sum or multiple payments over time. Part payment of personal loans works as follows:

• You make an additional payment towards your existing loan at any time during the loan tenure: This can be done online or at the nearest branch of the lender.
• Your loan balance reduces: The additional payment you make is deducted from your outstanding loan amount, reducing it accordingly.
• Interest rate revised: Since part payments reduce your principal amount and thus lower interest costs, lenders may revise the interest rate on personal loan to reflect this.
• EMI reduced: With a reduced principal amount, you may opt to reduce your Equated Monthly Instalment (EMI). If you choose to do this, you will have more funds available each month but note that reducing your EMI means it will take longer for you to repay the entire loan amount.

When part-paying off a loan, it’s important to make sure you are paying back more than just the interest portion each month, as this will not reduce the total long-term cost of your loan. It is also important to note that many lenders have minimum payment requirements, so ensure that you are meeting those before attempting to make any part payments.

Advantages of Personal Loan Part Payment

Part payment of personal loans offers a range of advantages, which include:

• Reduced interest costs:

  Making additional payments towards your loan reduces your outstanding principal amount and, thus, the total interest costs you pay on it over time. This can result in significant savings on long-term debt repayments.

• Shorter loan tenure:

  By making part payments on a regular basis, you can reduce the repayment period significantly and clear off your debt sooner than expected.

• Improved credit score:

  Regularly paying more than what is due each month shows lenders that you are an individual who takes your finances seriously, and this will reflect in your credit score, making you more attractive to lenders when applying for future loans.

• Flexibility:

  You can make part payments whenever you wish and in whatever amounts you prefer, allowing you to customize your repayment plan per your needs and financial situation.

How to Apply for Part Payment of Personal Loans?

Applying for part payment of personal loans is easy, and most lenders will allow it. You can make part payments with the help of Internet banking, by visiting your lender’s branch, or through a cheque. Apart from this, some lenders also provide loan top-up options which enable you to pay off your existing loan in full and take out a new one with lower interest rates and better repayment terms.

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Conclusion

In conclusion, if you are looking to save money on your loan repayments, part payment of personal loans is an effective way. It can help reduce the total principal amount owing as well as long-term interest costs. Additionally, it offers flexibility and improved creditworthiness when applying for future loans. Be sure to read through your loan agreement carefully and check with the lender about minimum payment requirements before attempting part payment of personal loans.