Why Making Partial Payments on Your Personal Loan is a Smart Move

When you avail a personal loan, repayment can feel like a long journey. However, there is a smart strategy that can ease this burden—making partial prepayments on your loan. By opting for partial prepayment, you can reduce your debt, save on interest, and gain more control over your financial future.

Let’s look into what partial payments are, their benefits, and how they can positively impact your loan calculations.

What are partial payments on a personal loan?
 

Partial payments, or partial prepayments, on a personal loan involve paying an amount towards your loan principal in addition to your regular Equated Monthly Instalment (EMI). These payments are made before the due date of your next EMI.

Unlike full prepayment, where you pay off the entire loan balance, partial prepayments reduce your outstanding principal gradually. This can lower future EMIs or shorten your loan tenure, making it a valuable strategy for managing debt more effectively and saving on interest costs over the long term.

Key benefits of making partial payments
 

1) Interest savings

Reducing the principal amount early decreases the interest you accrue, leading to significant savings over time.

2) Shorter loan tenure

Partial prepayments of personal loans can help you pay off your loan faster, allowing you to become debt-free sooner.

3) Lower EMI burden

If you keep the loan tenure the same, your EMI will decrease, freeing up more monthly income.

How do partial payments impact loan calculations?
 

Making a personal loan prepayment reduces the principal amount, leading to a recalculation of interest based on the new, lower balance. This can result in either a reduced EMI or a shortened loan tenure, depending on your lender's terms.

Note that partial prepayments can significantly lower the total interest paid, freeing up funds for other financial goals.

Factors to consider before making a partial payment on loan
 

1) Prepayment charges

Some lenders may charge penalties for partial prepayments. Check your loan agreement for any such charges.

2) Loan tenure

Decide whether you prefer to reduce your EMI or shorten the loan tenure, as both have different implications.

3) Emergency fund

Ensure that making a partial payment will not drain your emergency savings.

4) Investment alternatives

Compare the benefits of partial prepayment with potential returns from other investments.

How to make partial payments on your personal loan
 

To make a partial prepayment, first check if your lender allows it. If allowed, decide the amount to prepay and complete the transaction through your bank’s branch or its online platform.

Be sure to specify that the payment should reduce the principal. Afterwards, request an updated amortisation schedule to understand how the payment has affected your loan balance, EMIs, or tenure.

Alternatives to partial payments
 

If partial prepayments are not feasible, consider refinancing your personal loan with a lower interest rate or increasing your EMI payments if your income allows. Another option is IDFC FIRST Bank's FIRSTmoney smart loan, which offers flexibility in borrowing and repayment, making it a better option than traditional personal loans.

The completely digital application procedure for FIRSTmoney ensures quick approval and disbursement. Once your FIRSTmoney loan is approved, and you can instantly start withdrawing it for your needs.

How to apply for a FIRSTmoney loan?
 

To apply for a FIRSTmoney loan, follow these simple steps:

• Start by scanning the QR code or clicking on the loan option from your smartphone
• Register using your mobile number and confirm basic/personal details to check your eligibility
• Choose your loan preferences, including the tenure and repayment terms
• Link your bank account where you wish the funds to be disbursed
• Complete the video KYC verification process with your physical PAN card

Conclusion

Making partial payments on your personal loan can be a smart financial strategy. By understanding the benefits, potential impacts on your loan calculations, and the factors to consider before making such payments, you can make informed decisions that align with your financial goals.

Moreover, with options like IDFC FIRST Bank’s FIRSTmoney smart personal loan, you have the flexibility to borrow, repay, and even foreclose your loan without any additional fees, ensuring that you stay in control of your financial journey.