Understand the Pros and Cons of Prepayment of Personal Loans

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Personal loans are the best funding source when one needs instant cash for various big-ticket expenses. Borrowers take a loan to cover their cost and repay it over several months or years in EMIs. However, as their financial condition improves, they may consider paying off their loan sooner to become debt-free. Lenders charge pre-closure charges for personal loans, affecting the benefits.

Let’s look at the pros and cons of prepayment of personal loans.


Pros:

  • Become debt-free sooner

  • Save on the interest cost

  • Use the extra money to pay off the loan

  • Improved credit rating

  • Financial stability

  • Reduced debt burden

  • Decreased DTI ratio

Cons:

  • Personal loan prepayment charges

  • Requires making a lump sum payment


Since personal loan prepayment has pros and cons, check your lender’s pre-closure charges for applying for personal loans and ensure they do not exceed the money saved with loan prepayment.

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