But what exactly is the advantage in this case? In case of pre-payment the loan principal is reduced. All in all, the customers benefit.
The Reserve Bank of India (RBI) has increased the repo rate. As a result, the interest rate of bank loans is also increasing. And all in all, more burden is pressed on the shoulders of customers. In many cases, the situation has reached such a point that the amount of interest exceeds the actual amount. And to reduce this burden, many home loan borrowers are opting for prepayment option.
But what exactly is the advantage in this case? In case of pre-payment the loan principal is reduced. All in all, the customers benefit. In fact, in case of pre-payment, the customer has to pay a different loan compared to the regular EMI. Customers who have excess funds usually opt for this option. But even before opting for the pre-payment option, customers should keep several things in mind so that they can enjoy the maximum benefits of this facility. Today we will discuss some of the ways according to a report on this topic published in Moneycontrol.
Reduce EMI or Term:
When a customer makes a pre-payment, he has two options. First is to reduce the EMI or reduce the monthly expenses to some extent. And the second option is to reduce the tenure of the loan. In this, the EMI will remain the same, but the customer will have to pay less installments over a longer period, thereby reducing the total interest amount. And which option the customer chooses depends entirely on the customer’s situation.
Home Loan Balance Transfer:
Let’s say a customer feels that another bank is offering a better interest rate than the bank he has taken a loan from. In that case, the customer can transfer the loan balance to another bank. A fall in interest rates will also reduce aggregate interest and will not affect current liquidity and investment. So before transferring the loan balance, check whether the interest rate offered by the new bank is better than that of the existing bank. Apart from that, it should be ascertained how much it will help in saving.
Many banks also offer customers an overdraft option for home loans. Under this, banks provide an account to the customer, where he can deposit his excess funds and withdraw money from there when required.
Accumulated assets should never be used for urgent and urgent financial goals:
If the customer wants to pre-pay, it should be kept in mind that the money saved for emergencies should not be touched. Doing so exposes the customer to higher interest rates and risks future risks. Similarly, if the customer has set aside money to meet a specific financial goal, it is not appropriate to use it for pre-payment. Because it will worsen the financial condition of the customer in the long term. Apart from this, he has to take expensive loans to achieve those goals.