When you have extra funds, it’s tempting to pay off your loan early — but is it the right move financially?
Prepayment or foreclosure means paying off your loan before the tenure ends. Sounds great, but there’s more to it.
Let’s break it down — with insights from Vizzve Finance.
Pros of Prepaying a Personal Loan
1. 🏁 Save on Interest
Interest is calculated monthly. Closing early = less total interest paid.
2. 📈 Improve Credit Score
Shows lenders you're financially responsible.
3. 🧠 Peace of Mind
One less EMI = one less worry every month.
Cons of Closing a Loan Too Early
1. 💸 Foreclosure Charges
Many lenders charge 2–5% on the outstanding loan as a penalty.
2. ❌ No Tax Benefits (Unlike Home Loans)
No major deductions to lose, but no gain either.
3. 🔄 May Affect Credit Mix
Some credit bureaus like to see active and well-managed loans. Closing everything may lower your credit variety.
When Should You Prepay?
✅ You’re in the last leg of loan (80% already paid)? — Skip it. Interest savings are minimal now.
✅ You just got a bonus or windfall early in the loan? — Yes, prepay to reduce interest burden.
✅ You’re planning another big loan (like home or car)? — Prepay small loans first to reduce debt-to-income ratio.
Vizzve Tip: Ask for a Foreclosure Quote First
Before closing, ask your lender or use Vizzve’s EMI & prepayment calculator to:
Check foreclosure charges
See net interest saved
Plan a smarter closure strategy
Important: Prepayment ≠ Part-Payment
Part-payment: You pay some chunk early and continue EMIs.
Foreclosure: You pay entire balance and close the loan.
Both have different rules. Confirm with your lender.
Real Example:
Loan: ₹1,00,000
Tenure: 12 months
Interest: 14%
EMIs Paid: 6
If you foreclose now, you save ₹3,500+ in interest. But lender charges ₹2,000 as fee. Net gain: ₹1,500. Worth it? Depends on your goal.
FAQs
Q1. Is it better to prepay early or late in a loan?
Early! That’s when interest forms a bigger chunk of your EMI.
Q2. Do all lenders charge for prepayment?
Not all. Vizzve offers zero foreclosure charges on select products.
Q3. Will prepayment improve my credit score?
Yes, slightly. But only if other credit behavior stays positive.
Q4. Can I prepay Vizzve loans online?
Yes! Log into your dashboard, choose "Foreclose Loan," and pay digitally.
Final Takeaway
Prepaying your loan is a smart move when:
You're early in the tenure
You can avoid or absorb foreclosure charges
You have no better investment use for the funds
But don’t rush it blindly. Use calculators, read the fine print, and speak with your lender.
Published on : 23rd July
Published by : SMITA
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