How To Estimate Repayment Of Debt In Personal Loan

24 Jun

Personal loans are unsecured loans which mean that the borrower does not have to enlist any collateral or security with the bank or the financial institution. Several factors such as the stability of income, employment history, past debts, repayment capabilities decide the borrowers’ eligibility for a personal loan. The amount loaned can be used for any purpose, there is no restriction on its disposition, it can be used to fund medical bills, wedding expenses, funeral costs, education purposes, moving or home renovation costs, etc. Personal loans are an instalment debt that allows borrowers to procure a huge amount at once. The borrower, in return, has to repay the principal amount with an interest rate charged on it by the loan issuing bank or financial institution. Banks and financial institutions allow the borrowers to repay the loan amount through fixed monthly instalments, commonly known as equated monthly instalments (EMIs). EMI means a fixed payment that is made by the borrower to the bank or the financial institution on a monthly basis till the end of the loan tenure. The interest on the loan amount can be charged by one of two methods - the flat rate method or the floating rate method.

A borrower can make use of the Personal Loan Calculator which allows the borrowers to calculate their EMI in advance. This facility is available on the bank or financial institutions website or mobile app. The borrower can figure their monthly instalment before obtaining a loan by using this facility. The EMI of a loan is computed on the basis of the loan amount, loan tenure, and interest rate. The interest rate is decided by the bank or the financial institution and it differs from lender to lender. The borrower can use several combinations of the loan amount and loan tenure according to their financial requirements and repayment capacity to figure a loan that fits their needs. The EMI calculator feature allows the borrowers to try different combinations and plan their budget based on the monthly instalments before obtaining a loan from the bank or the financial institution.

An Alternative Option To Repay The Personal Loan To The Bank Of The Financial Institution:-

Prepayment and foreclosure - A prepayment option is an option that allows the borrower to settle their debt in advance i.e before the end of the loan tenure. This option allows the borrower to gain the advantage of the lower interest rates. However, banks and financial institutions charge a fee on prepayment and foreclosure known as the “prepayment penalty”. This fee is charged by the banks and financial institutions to recover a part of the amount lost on the interest that the borrower saves. The banks and financial institutions also impose a lock-in period on prepayment which means that borrower cannot make a prepayment until after the lock-in period is over. The prepayment fee and lock-in period differ in every bank and financial institution based on their policies on a personal loan. Making prepayments help the borrower to go debt-free faster. Paying the prepayment penalty would be considered a bargain against having to pay large amounts of interest on the loan amount. If the prepayment is made in full, the borrower goes debt free completely, if it is made in part, it reduces the EMI amount and interest rate, which saves the borrower a significant amount of money. Making a prepayment also improves the credit score of the borrower as it indicates a positive repayment capacity. The borrower must remember that they would be paying a prepayment fee and a lump sum amount to settle the loan. They should assess their financial situation and calculate the difference between the interest payments and prepayment penalty, only if they make a saving, they should make the prepayment. Indiabulls Personal Loan is one of the financial institutions that provide the facility of an online personal loan calculator.