(Last Updated On: March 10, 2024)

Personal loans have emerged as versatile financial tools that provide much-needed relief in times of need. From medical emergencies to pursuing dreams, personal loans offer a helping hand in various situations. Here are the top reasons why people opt for personal loans –

Weddings

Weddings are joyous occasions, but they often come with significant expenses. Personal loans can cover wedding costs, including venue bookings, catering, decorations, and more. This enables couples to concentrate on forming beautiful memories without stressing much about finances.

Starting a business

Entrepreneurship often requires initial capital to kickstart a business idea. Personal loans can provide the necessary funds to cover startup costs, purchase inventory, or expand operations. This financial support can turn your entrepreneurial dreams into reality.

Education

Personal loans can help you fund higher studies or skill development courses that can enhance your qualifications and career prospects. From pursuing a master’s degree to enrolling in specialised training programs, personal loans can bridge the financial gap.

Unexpected bills

Sometimes unexpected bills, like a hefty repair or legal fees, can catch you off guard. Personal loans can provide the financial cushion needed to address these sudden financial burdens without disrupting your budget.

Medical expenses

Medical emergencies can be financially draining. Personal loans come to the rescue when unexpected health issues arise. Whether it’s a sudden surgery, medical treatment, or hospitalisation, having a personal loan can provide you with the necessary funds to ensure the best possible care without compromising your financial stability.

Festivities

Festivals are a time of joy and celebration. Personal loans can help you make festivals even more memorable by covering expenses like decorations, gifts, clothing, and travel to be with loved ones, ensuring you can celebrate without financial constraints.

However, knowing when and how to avail a personal loan is not the end of the journey. Understanding what you must consider before closing your personal loan is equally crucial.

Prepayment charges

Understanding the prepayment charges associated with your personal loan is vital. These charges can vary between lenders and might influence your decision to close the loan early or continue with regular EMIs.

For instance, Axis Bank personal loan pre-closure charges may be different from those of other banks. It’s essential to be fully aware of these charges before making a decision.

Interest rate assessment

Before closing your personal loan, it’s crucial to assess the interest rate you’re currently paying. This evaluation is essential because it directly impacts the overall cost of your loan. Consider this scenario involving Rajesh –

Rajesh had taken an Axis Bank personal loan to fund his home renovation. Over time, he diligently repaid a substantial portion of the loan. However, he noticed that the interest rate on his personal loan was still comparatively high. Realising that he could potentially save a significant amount on interest charges by closing the loan early, Rajesh decided to investigate further.

Outstanding principal amount

Taking stock of the outstanding principal amount is fundamental to a smooth loan closure process.

Suresh had availed a personal loan to cover a medical emergency. After a year of regular payments, he found himself in a better financial situation and decided to close the loan early. To avoid any discrepancies, Suresh ensured he had the exact outstanding principal amount ready for repayment.

Remaining EMI calculation

Calculate the remaining Equated Monthly Instalments (EMIs) with meticulous attention. This calculation can help determine if it’s more cost-effective to continue paying EMIs rather than closing the loan prematurely.

Meera had an Axis Bank personal loan, and she found herself in a situation where there were just a few EMIs left to complete the tenure. She decided to calculate the remaining interest and realised that continuing the payments as scheduled would be more economical than prepaying the entire loan amount.

Loan tenure impact

Closing a personal loan early can have an impact on your credit history and financial prospects in the future.

Maya, who had an Axis Bank personal loan, decided to close it early to improve her credit score. This decision proved beneficial when she later applied for a home loan, as her improved credit score enabled her to secure a better interest rate.

Tax benefits

Evaluate if you’re availing any tax benefits on the interest paid towards your personal loan.

Raghav had availed an Axis Bank personal loan for home renovation. He realised that he could claim tax benefits on the interest he paid on the loan, which significantly influenced his decision to retain the loan rather than close it prematurely.

Compare investment opportunities

Rather than prematurely closing a personal loan, it is wise to assess potential returns from alternative investments.

For example, you may have surplus funds that you could potentially invest elsewhere. In some cases, such as when alternative investments offer higher returns, it might be financially prudent to continue paying the loan EMIs and invest the surplus elsewhere.

Assess future financial needs

Consider your future financial requirements when deciding whether to close your personal loan early.

If you anticipate needing another personal loan or any form of credit shortly, closing the current personal loan might affect your eligibility and borrowing capacity. It is essential to weigh these potential future needs against the benefits of closing the loan early.

Keep records

Maintaining meticulous records of all loan-related documents and transactions is crucial for a seamless loan closure process.

Priya decided to close her Axis Bank personal loan and took the extra step of ensuring she had all the necessary paperwork to prove the closure. This proactive approach safeguarded her interests and ensured a hassle-free closure process.

In conclusion, the decision to close a personal loan should not be taken lightly. It involves assessing various factors, including interest rates, charges, and your overall financial situation. Whether you have an Axis Bank personal loan or one from another institution, careful consideration and understanding of these elements are key to making an informed choice that aligns with your financial goals.