When you make part-prepayments of your Loan Against Property amount, you volunteer to repay a substantial amount of your loan sum in advance. You may choose to do this when you have surplus funds or are intent on saving the interest accumulating on your ongoing Loan Against Property.
Note that making part-prepayments is not the same as loan foreclosure, as the latter means that you repay the entire outstanding loan amount in one go, before the end of your repayment tenor.
Moreover, if you are an individual borrower whose Loan Against Property is linked to a floating interest rate, you don’t incur any part-prepayment penalties. It stands true, provided the loan amount is not used for business expansion purposes.
If you are still undecided about whether to prepay parts of your loan against property repayment amount, considering the advantages and disadvantages of this move might help you arrive at a suitable decision.
Advantages of Part-Prepayment
- ​Higher Savings: One of the prime advantages of making part-prepayments is that you directly bring down your total repayment amount, which also means that you will be charged lower interest on your remaining loan balance.
- Boosts Repayment Capacity: By making part-prepayments on your ongoing Loan Against Balance, you also work towards freeing up your repayment capacity which also allows you to have more cash at your disposal for other financial expenses you may have.
- No Penalty for Prepaying: Another factor to consider is that you will be able to reduce your loan liability at zero additional costs, which is a significant benefit for individual borrowers with floating interest rate loans.
Disadvantages of Part-Prepayment
- Prepayment Burden: For your prepayment amount to qualify as one, you must be able to meet the lender’s part-prepayment criteria. Lenders request an equivalent of at least one EMI to be made at one go for your part-prepayment to count. It may mean that you have to secure the amount at the cost of your allocated budget.
- Penalty for Non-Individual Borrowers: Non-individual borrowers like entities or groups are penalised upon making part-prepayments on their Loans Against Property. They may be charged up to 2% of the loan amount as a fee. It is also true for loan amounts that have been used to address business expansion expenses.
A Loan Against Property is a useful credit facility, but to repay the loan diligently is also a significant responsibility. A move that lightens your loan burden is welcome but ensure that it benefits your financial planning in the long run.
Read Also: How to Prepay a Loan Against Property
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