What is Personal Loan Repayment and Types of Loan Repayment Methods?

Taking a personal loan is not only a means to get instant access to money, but it’s also a financial responsibility. This is why it’s important to understand everything about your personal loan repayment.

What is a Personal Loan Repayment?

When you pay back the money you borrowed from a lender, it’s known as a personal loan repayment. You have to repay the loan with the applicable personal loan interest and charges.

You can make the repayments in the form of instalments every month which is also known as equated monthly instalments (EMIs)

If you fail to repay the loan, you might face consequences like penalty charges, reduced loan eligibility in the future and decrease in a credit score.

Importance of Personal Loan Repayment

Personal loan repayments can affect your credit score. Your credit score will remain high if you make your loan payments on time. This helps in your future ability to obtain a favorable loan for your borrowing requirements.

Missing or delaying payments can result in high interest rates, late penalties, and a damaged credit report. Furthermore, lenders will evaluate you for better deals and your chances of qualifying for better loans may increase if you consistently pay off your debts on time.

Setting up auto pay and keeping a healthy balance are always recommended to reduce the chance of defaults or missing payments. If you fail to do so, you risk having your credit permanently damaged and losing future loan offers from lenders.

How To Calculate Loan Repayment?

The widely used approach that can be computed for personal loan repayment is: 

EMI = [P x R x (1+R) ^N]/ [(1+R) ^ (N-1)], 

• P is the principal amount
• R is the rate of interest
• N is the loan tenure

This is the common formula used by anyone to calculate EMI. Some variables may be added based on the type of loan. You can also use Zype’s EMI calculator to calculate personal loan EMI in a few seconds. 

What are the Types of Personal Loan Repayments?

There are different repayment methods available depending on the lender and the types of loan you take.

1. EMIs

This is the most common type of personal loan repayment method that most lenders offer. You can borrow the money you need and pay back the loan with interest in instalments every month (EMI).

2. Bullet Payment

This is a method of payment where you only pay the interest during the entire loan tenure. You will have to pay the principal amount at the end of the loan tenure. There are a few lenders and financial institutions that offer this repayment method.

Also Read: How to Repay Your Zype loan

Foreclosure and Part-Prepayment Charges

1. Part-Repayment

A part repayment is when you repay a part of your total outstanding amount that is more than the EMI amount.

2. Foreclosure

You can also repay the total outstanding amount before your due date. This is known as foreclosing your loan.

Depending on your lender, repaying your loan in part repayments or foreclosure might have some additional charges. The extra charges on a foreclosure can range anything between 2% to 6%.

With Zype, you can make a part repayment or foreclose your loan with no such extra charges.

What Happens If You Miss a Personal Loan Repayment?

Missing a personal loan repayment can have a bad impact on your financial profile. Initially, you may be charged late fees which leads to an increase in the overall cost of the loan. Missed payments negatively affect your credit score, making you less eligible for future loans or securing favorable loan terms.

If the missed payments continue, your loan could default, which may also lead to legal actions against you. It’s essential to communicate with your lender if you’re facing difficulty, as many offer repayment options or flexible terms to help avoid these issues. Staying on top of personal loan repayment is vital to protecting your financial stability and maintaining good credit.

What is the Prepayment Penalty applied to Personal Loan

When you repay your loan or a part of your loan amount before the due date, it’s known as a prepayment.

Depending on your bank or lender, there might be a prepayment penalty applied to your personal loan. The average prepayment penalty can range from 2% to 7% of the principal.

On Zype, you can get personal loans without any prepayment penalty charges.

Documents Required for a Loan Pre-Closure

You can pre-close your personal loan very conveniently. All you have to do is submit the required documents along with the pre-closure charge to your lender. The lender will then process your request and pre-close the loan.

You will need your identity proof like PAN or Aadhaar card, bank statement containing information about the EMIs paid, and your loan agreement.

Please note that the documents required to pre close the loan can vary from lender to lender.

How to Apply for a Personal Loan?

You can easily apply for a personal loan online.

To complete your application process, you will have to provide your lender with the required details and documents. (The required details can vary from lender to lender)

Based on the provided information and your credit profile, the lender will evaluate your personal loan eligibility and approve you for a loan amount.

After you have accepted the loan offer and terms, you will get instant access to the money you need.

You then have to pay back the money with interest according to your repayment plan.

Conclusion:

Make sure you make on time payments to avoid any consequences like penalty charges, reduced loan eligibility and decrease in credit score.

Looking for the fastest instant loan app with flexible repayment options? With Zype you can get personal loan up to ₹5 lakhs. Borrow the money you need now and pay later in 3, 6, 9 or 12 EMIs.

Also Read: Personal Loan EMI Calculator