A personal loan is the easiest type of loan you may avail to settle off existing debt, buy a property, purchase a motor vehicle, or for any other purpose. However, the personal loan is a liability, and you need to make a robust plan to pay off the dues in time; else, the lender might impose a fine. Thankfully, you may prepay the loan without waiting until the end of the term.

Here is a laydown of the do’s and dont’s you should consider before prepaying.

The Do’s

Create a Provision for Meeting Daily Expenses

Ensure that prepaying the loan does not put any additional burden on your monthly fixed expenses. Stay cautious if you already have a personal loan or mortgage loan, as not paying the dues on time may decrease your credit score.

Use a Personal Loan EMI Calculator

Before deciding to prepay the loan, use a personal loan EMI calculator to check if you can manage a discount from another lender. Sometimes, it is better to switch to a different lender who is offering a lower interest rate than to prepay the loan.

Check the Prepayment Charges

Lenders often charge a prepayment penalty, which can partially offset the benefits of paying off the dues early. Calculate how much you are saving in real terms by prepaying. Opt for prepayment only when you feel the long-term benefits far outweigh the short-term ones.

The Don’ts

Don’t Burden your Personal Savings Account

The worst mistake that you can make is prepaying by emptying your savings account. By doing so, you can make yourself vulnerable to unpredictable emergencies. If such a need ever arises, you might have to apply for a personal loan again.

Never Discontinue or Close Existing Investments

Sometimes, you might feel like surrendering your mutual fund units, selling your stocks, or pulling out money from retirement funds is the best option. But, by doing so, you can lose the opportunity to make handsome profits. If given time, mutual funds, stocks, or retirement funds can generate higher returns than you will pay as loan dues over time.

Conclusion

Before prepaying a loan, consider all its pros and cons. There is probably nothing better than prepaying a personal loan. However, prepaying should never seem like a burden.

Must Read: Small Personal Loans: Everything You Need to Know!