Part-Payment Vs Prepayment Vs Pre-Closure? Check Out the Differences

In India, many people take up a personal loan to finance their dreams of owning their own houses, holding lavish weddings, completing their graduation programs, or travelling with their families. Many also opt for a personal loan to tend to medical emergency situations or pay off existing debt. Taking up a loan involves repaying it with an additional cost of borrowing or interest. All in all, you repay an amount greater than what you borrowed in the first place.

There are 3 main aspects of repaying a personal loan: Prepayment, part-payment, and pre-closure. These terms are related to the comfort and convenience with which one repays the loan amount with the interest specified within the fixed tenure of time. This article explains part-payment vs prepayment vs pre-closure in simple terms.

What is Part-Payment?

When you choose the part-payment feature for repaying your loan, you opt for saving a major chunk of repayment money. Part-payment means that you wish to give back to the lending institution a significant amount of loan money at once. This amount is less than what you borrowed, but is considerable enough to cut down your interest and EMI payment.

For example, if you have borrowed a principal outstanding amount of INR 10,00,000 at an interest rate of 15% for a tenure of 3 years, then your total interest will be calculated as follows:

Interest without part-payment = INR 2,47,775

You can use this online EMI calculator to make these computations. It also displays the total interest payable.

Suppose that you made a part-payment of INR 5,00,000 after your first year of borrowing. Then, the principal amount that remains will be INR 5,00,000 and tenure remaining will be 2 years.

Accordingly, the interest payable will change and you will be able to save on additional interest otherwise applicable on your total principal amount.

Must Read: Factors that Can Decide Your Personal Loan Approval

What is Prepayment?

The act of repaying the entire amount you borrowed from the lending institution well before the actual tenure of the loan is completed is known as prepayment. For example, suppose that you have taken up a personal loan of INR 2,50,000 for a tenure of 3 years for a personal investment, at an interest rate of 12%.

According to this online EMI calculator, your total payable funds amount to INR 2,98,886 at the end of 3 years.

Let us say, this investment that you made gave you higher returns than you expected it to within 20 months. At the end of 20 months, your current loan is at a principal outstanding of INR 1,22,210 and you have repaid a total of INR 1,291 as interest and INR 7,011 as principal.

Because of your investment gains, if you are financially capable of producing all remaining loan repayment amount (INR 1,22,210) at the end of these 20 months, then you can become debt-free. When you give this amount back to the lending institution, you will not owe anything more to the firm and can be freed from paying additional interest or EMIs.

What is Pre-Closure?

The fees that you have to pay when you opt for a prepayment is called the pre-closure fees. Lending institutions like SMFG Credit India apply only nominal charges for the same:

• After full payment of 0 to 17 EMIs, pre-closure charges are 7% of the total borrowed amount.
• After full payment of 18 to 23 EMIs, pre-closure charges are 5% of the total borrowed amount.
• After full payment of 24 to 35 EMIs, pre-closure charges are 3% of the total borrowed amount.
• Beyond the payment of 36 EMIs, 0 pre-closure charges applied.

According to SMFG India Credit’s current policies, all personal loan prepayments must be done in full along with a certain minimum fee. Once the entire outstanding amount is paid before the tenure is reached, it will prove to be beneficial for your finances since you can get rid of the debt as soon as is healthily possible. If you want to learn more about the pre-closure conditions, click here.

Must Read: Difference Between Payday Loans and Personal Loans

Taking Up a Personal Loan

With NBFCs like SMFG India Credit, you can take up a personal loan for a maximum amount of INR 30 Lakhs* for a tenure of up to even 60 months. Moreover, the interest rates range from only 13% to 36% per annum and you can avail pre-closure fees at only 0% to 7% of the principal outstanding amount according to the number of equated monthly installments paid.

The eligibility criteria is minimum and the documents for a personal loan can be submitted completely online.

Conclusion

Once you understand part-payment vs prepayment vs pre-closure, deciding how to repay your loan will become easy. If you are looking to take up a personal loan, you can apply for SMFG India Credit’s instant personal loan online. Make the most of this financial support!