Right from debt consolidation to financing major events in one’s life, personal loans provide an easy way of meeting diverse financial requirements. Part payment is also possible while the borrower goes through the repayment cycle. Planning means knowing what a part payment is and its advantages and disadvantages.
What is part payment?
The process of paying a lump sum against the outstanding principle of a personal loan before the contract date is called part payment, or partial payment. A part payment reduces the principal balance at one time, as opposed to the monthly payments that pay both principal and interest. This reduction can reduce the term of the loan and decrease the total amount of interest paid over the life of the loan.
How does part payment work?
The excess amount is added to the initial amount due when a borrower pays an instalment. The interest rates are less because interest on subsequent periods is calculated based on this diminished principal. Borrowers have the choice of decreasing the EMI while maintaining the initial term of the loan.
In conclusion, the immediate reduction of a loan’s principal amount saves borrowers both interest expenses and possibly reduces their debt period. The examination of minimum payment obligations and prepayment penalties together with individual financial situations must happen prior to concluding.
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