Personal Loan Prepayment: Pros And Cons You Should Know | Business News

Last Updated:July 17, 2025, 16:27 IST

Prepaying your loans is the fastest way to attain financial security and freedom.

A loanee must assess all the advantages and disadvantages of making a prepayment of their loan. (Representative Image)

Middle-class Indian citizens are often worried and anxious about their loan repayment. Salaried employees and small business owners slog hard to make sure the EMIs are paid on time. But if you’re considering prepayment of the loan to accelerate your financial freedom, it’s important to understand its pros and cons.

For beginners, the process of paying the entire outstanding balance on your loan before the end of your scheduled loan term is called ‘Prepayment’. It allows you to settle the entire loan and end the EMI obligations immediately. However, like all important elements of financial management, there are pros and cons one must understand before paying off your loans prematurely.

Advantages

Interest Savings: Repaying the principal sum loaned in buying a property or any other asset is not so much a headache; it is the interest that banks charge that causes the real tension and frustration. Prepaying your loans can help you avoid future interest costs and save a lot of money.

Improved Credit Profile: Prepaying your loans also boosts your credit profile and scores significantly, exhibiting great reliability. It then helps you avail of better loans with suitable interest rates in the future.

Money Freedom: Prepayment clears up your debts and reduces your financial burden massively, which lowers your stress and restores money freedom.

Disadvantages

Prepayment Penalties: The penalties charged by banks on premature loan settlements can be annoying. Just when you are about to attain financial security and freedom, your bank comes up with a penalty ranging from 2 to 5 per cent of the remaining amount as a penalty for early closure.

Credit Age: Prepayment also entails effectively reducing your average age of accounts, which usually harms your credit age. Proceed with your prepayments once you have fully evaluated the perks involved.

Business Desk

A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More

A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More

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Delhi, India, India

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