Part Payment of Personal Loan: Everything You Need to Know

What is Part Payment?

During instances when you have additional cash at your disposal, be it through a bonus, additional savings, or an increase in income, utilizing these resources to make partial payments towards your personal loan can help you get closer to becoming debt-free quickly. 

Partial payment meaning is when you make additional payments towards your ongoing personal loan other than your monthly EMI. Doing this reduces your overall outstanding repayment, making your monthly EMIs more manageable.

Considering part payment personal loan? Read this blog to learn more about what is part payment in loan, how it works and why you should do it. 

How Personal Loan Part Payment Works?

When you take a personal loan from the lender, you agree to pay it back according to a repayment plan which is usually in the form of monthly installments called EMI. An EMI breaks down your total outstanding amount into smaller and more manageable payments.

However, if you find yourself in a situation where you have excess funds, you can make additional payments towards your existing loan, at any given point. Just make sure there aren’t any penalty charges associated with the same.

Here’s what happens when you go ahead with a part payment personal loan.

1) Your Outstanding Loan Reduces

Making part payments towards your outstanding loan lowers the total money you owe to your lender, reducing your financial obligations.

2) The Interest Rate Charged on the Loan Changes

A reduction in the outstanding amount you have to pay to your lender also leads to a revision of the interest rate charged on it.

3)  Your EMI Also Reduces

A reduction in your principal amount and interest rate will automatically reduce the EMI amount you have to pay every month. 

Read More: Personal Loan EMI Calculator

Charges on the Part Payment of Personal Loans

There are some lenders in the market that charge an additional fee on part payment of personal loans. This is because when you make part payments, it reduces the interest charged on it which is a loss for the lender. To compensate for this loss, they charge a prepayment penalty on it.   

However, there are a few lenders like Zype that don’t charge any penalty on prepaying or foreclosing the loan.  

Advantages of Personal Loan Part Payment

Part payment personal loan is a smart financial move that can help you become debt-free quickly. But the advantages of it are beyond that. Here’s how partial payments can ease your repayment experience as well.

1) Decrease in Interest Rate

When you make additional payments towards your personal loan, it decreases the total amount you owe to the lender. Hence, it also decreases the interest you have to pay on your personal loan.

2) Shorter Loan Tenure

Part payments can help you get free from your financial obligations quickly as you pay off a major portion of the total outstanding amount beforehand.

3)  Improve Credit Score

When you prepay your loans, it is reported to the credit bureau. This shows the lenders that you’re a financially responsible individual that can be trusted with credit. This automatically improves your credit score.

4) Flexibility in Repayment

If your lender gives you the facility of making partial payments towards your loan, you can pay the loan whenever you want, according to your budget. This makes your personal loan repayments more flexible, as per your convenience. 

Things to Know Before Opting for Partial Payments

It’s important to understand exactly what is part payment in loan and its outcomes on your finances before making any partial payments. Here are some important things you should know beforehand:

• Make sure your lender provides the facility of making partial payments on your ongoing personal loans.
• Check if there are any additional charges associated with making partial payments on your personal loans. Since prepayments reduce the total interest rates on your personal loan, some lenders charge a prepayment fee to compensate for that loss.  
• If you’re choosing a part payment personal loan to get free from your financial obligations quickly, make sure that your additional payments are helping you reduce the total principal amount of your personal loan and not just the interest. 

How to Apply for Part Payment of Personal Loans?

Making partial payments on your ongoing personal loans is a relatively easy process. If you have taken a personal loan from a bank or an NBFC, you can make the part payment on the net banking app or at the branch itself. But before you opt for part payment ensure there is no additional penalty associated with it.   

Read More: Why Opting For an NBFC Personal Loan is a Better Option?