New Delhi: The requirement of a personal loan can arise with any individual as all the big-ticket purchases and high-quantum requirements can’t be met with the available money. As all the personal loans are unsecured in nature, the interest rates applicable on personal loan repayment is typically higher as compared to other credit facilities such as gold loans, vehicle loans, home loans, etc. The interest rates on personal loan repayment are the highest among all other credit facilities except interest rate charges on credit card outstanding balance, money overdrawn from a credit card.
The applicable interest rate on the personal loan varies between 12 per cent and 20 per cent which is subject to the individual’s existing relationship with the bankers, credit repayment history, prevailing credit facilities, earnings capacity, the sustainability of job and total sources of income. A person loan seems very useful in the case of temporary emergent situations such as buying house furniture, weddings, vacations, and other consumer-related utility products.
The facility of prepayment or partial payment of the personal loan can be availed if an individual is having an ample amount of money which is nearly equal to the balance repayment of personal loan amount including the interest amount.
With the prepayment of personal loan, an individual can reduce the interest charges to a greater extent. A number of scheduled commercial banks have the facility of personal loan prepayment with which the balance loan amount can be repaid in a lump sum by paying some finance charges which are relatively lower than the cumulative EMIs yet to be paid. Typically, personal loans have a lock-in period of 1 year which implies that a person is not allowed to prepay the loan amount before one year and has to service the payments via mutually agreed EMIs.
If the person is not capable of complete prepayment, partial payment of the personal loan is another option which reduces the interest amount and tenure of the personal loan substantially. Banks charge a proportionate fee for partial payment and adjust the balance personal loan amount in a shorter period with slightly lower interest rates. For example, if a person is obligated to pay a personal loan EMI for the coming 36 months. The bank will reduce the tenure and the interest applicable if the individual pays off about 50 per cent of the personal loan amount.