Personal Loan Pre-Payment: The Basics and the Benefits - MoneyTap Blog
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Personal Loan Pre-Payment: The Basics and the Benefits
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Personal Loan Pre-Payment: The Basics and the Benefits

If you have an existing personal loan, it is a good idea to pre-pay it whenever you have extra money to spare. By doing so, you not only get debt-free sooner but also enjoy numerous measurable financial benefits. In this article we’ll talk about:

  • What is personal loan pre-payment?
  • Types of pre-payment
  • What is a pre-payment fee?
  • Why do some lenders charge you money for paying them early?
  • When to choose to pre-pay? 
  • Benefits of pre-payment

So, let’s begin.

What is personal loan pre-payment?

Personal loan pre-payment is repaying the personal loan amount to the lender before the loan tenure ends. There are two ways to pre-pay your personal loan: 

Types of Pre-Payment

  1. Part pre-payment – paying off your loan in parts. 
  2. Full Pre-payment – paying your loan in full. 

The best part is that the banks cannot stop you from pre-paying. But they can apply pre-payment charges on personal loan. A pre-payment fee to pay off your loan early can be a bummer in your intention to be debt-free.  

What is a pre-payment fee? 

A pre-payment fee is exactly what it sounds like – a charge for paying your debt before your loan tenure ends. The fee amount is usually a certain percentage of the total unpaid principal balance at that time. Some lenders may instead charge a fixed amount. 

So, why do some lenders charge you money for paying them early?

Personal loan lenders earn money from the interest they charge you on your loan amount till you complete your loan tenure. When you decide to pay the loan much before the due date, they lose on the interest they would have otherwise earned had you planned to stick to the loan tenure. 

By charging a pre-payment fee, two things can possibly happen – either you get discouraged from paying the loan early, so they earn the full amount of interest or you pay the penalty which kind of makes up for the financial loss they incurred because you paid early. 

When to choose to pre-pay? 

You can choose to pre-pay when you are in the early stages of your personal loan or once your lock-in period ends. 

For pre-paying (in full or part), if your bank charges you a fee, then weigh which option is better – paying the penalty or pre-paying to save money on interest. Then decide your next move.

What are the benefits of personal loan pre-payment? 

There are several benefits to pre-paying your personal loan

Save on interest: Since you no longer have to budget for EMIs, paying your personal loan off early will save you hundreds, even thousands of rupees in interest over the long run.

Access more cash: You are in a better financial position with access to more money at your disposal. You can then decide to save or redirect the funds towards other goals. 

Improved debt-to-income ratio: Personal loan prepayment makes you an attractive borrower and improves your credit score. Your debt-to-income ratio becomes low and lenders find you qualified for better loan terms and attractive interest rates if you ever decide to take a loan again. 

Peace of mind: Getting rid of debt is a rewarding experience. You sleep better as you are not worried about keeping aside money to pay off your EMI amount every month. 

MoneyTap offers personal loan with no pre-payment charges. Apply for MoneyTap’s personal loan when you are in need of urgent cash and pay the entire loan off as soon as you can or take advantage of its flexible repayment options. The choice is all yours. Get the app now!

Kunal Varma

Kunal Varma

Kunal Varma is the CBO & Co-founder of MoneyTap. He's one of the top voices in Indian FinTech industry and has been featured in Economic Times, CNBC TV18, Zee Business, NDTV, & more. An MBA from ISB, he loves to workout and go diving on his off days.


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  • Hello,
    I have a loan from moneytap, i have put up a query regarding the foreclosure/pre-payment of my loan, one of your associate (Nibedita) i am chasing her on mails for the past one month for the foreclosure of my account till now I didn’t even got a proper response from her. And now my next EMI date has come till now also they haven’t called or responded.

    • Hi Sreesankar, we have replied to your email. Please check and let us know in case of any queries. We are happy to assist you.

  • Hello,
    I have a similar issue of foreclosing. Ms. Nibedita , I am following with her from pat 1 month . worst service ever . Fraud.
    I have done lots of emails . Its a fraud service. will post the experience everywhere so that you guys cant fool others.

    • HI, we are extremely sorry about this issue and the delayed response. We have already escalated this matter to the apex level. Please give us some time.