By taking a home loan, we can fulfill our dream of owning a house. However, after that, repaying it on time seems to be a big task. If the loan installment is not paid on time, then the CIBIL score will be affected. Apart from this, a penalty will also have to be paid. In such a situation, a good option to get rid of the home loan installment is pre-payment.

What is pre-payment? (What is Loan Pre-Payment)

To repay the loan before time, the loan holder has the option of pre-payment. In this, he pays a part of the loan. After selecting this, the loan EMI is reduced and the loan amount also reduces. This is a very good way to get financial freedom as soon as possible.

If you are also thinking of selecting this option, then let us tell you that the bank charges on it. We will tell you below what charges the bank or financial institution takes from the loan holder.

Penalty is imposed on pre-payment

Many banks impose a penalty on pre-payment to prevent early payment of the loan. This penalty can be a percentage of the outstanding loan amount or a flat fee. However, this penalty is imposed in the initial years of the loan. If a person takes a loan for 20 years and he selects the option of pre-payment in the first 3 to 5 years, then the bank or financial institution imposes this penalty. Actually, the bank imposes this charge to cover its cost.

Many banks and financial institutions do not impose any penalty on selecting the option of loan pre-payment. In such a situation, while taking a loan, you should know well about the pre-payment policy so that there is no problem in future.

Be sure to keep these things in mind

You should calculate the EMI and savings before selecting this pre-payment option. You should pay attention to whether the penalty you are paying is more than the interest you get from your savings or not. You can use an online calculator for this.

Make sure that prepayment does not affect your emergency fund and savings. If it affects your emergency savings, you may face financial problems in the future.

You should always keep in mind that the funds you are using for prepayment can give better returns if invested elsewhere.

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