Axis Bank Personal Loan Preclosure Charges

Interest Cost Savings

Existing borrowers of Axis Bank Personal Loan opting for personal loan prepayments can save on interest costs they would have otherwise incurred during the entire loan term. For example, if an individual avails a personal loan of Rs 8 lakh at 13% p.a. for repayment tenures of 5 years, then his EMI would be Rs 18,202 and the total interest payable would be Rs 2.92 lakh. However, if he repays the outstanding loan amount after a year, his savings on interest costs would be up to Rs 1.95 lakh. Note that prepaying a personal loan in the initial stages of its tenure would result in higher interest cost savings.

Lower Proportion of Unsecured Loans in Credit Mix

Credit mix is the ratio of secured and unsecured loans for any individual. Since Axis Bank Personal Loans are unsecured in nature, prepaying the personal loan will lower the proportion of unsecured loans in the credit mix. An increased proportion of secured loans helps to improve your credit score and thereby, improve your chances of availing another loan.

Increased EMI Affordability

Banks and non-banking financial companies (NBFCs) prefer lending to loan applicants whose total EMIs (including both existing EMIs and EMI for the proposed new loan) are within 50-60% of their total gross/net monthly income. Hence, loan applicants exceeding this income limit have lower chances of availing personal loans. However, one can prepay their existing personal loan to reduce the EMI/NMI ratio and thus, improve their personal loan eligibility.

Prospective personal loan borrowers should also check the personal loan EMI calculator to determine the optimum loan tenure and EMIs depending on their repayment capacity.

Negative impact on Liquidity

Many borrowers deplete their existing investments to prepay their personal loans. This also affects their emergency funds that they would have otherwise used in situations like medical emergencies, loss of job/income or any other such contingencies. Prepaying your personal loan using existing investments may also force you to avail loans at higher interest rates just to meet your financial goals or deal with financial emergencies. To avoid this situation, you should only opt for preclosure of personal loan only if you have sufficient emergency funds. Personal loan borrowers having restricted liquidity can reduce their repayment burden and interest cost by opting for personal loan balance transfer facility wherein they can transfer their existing loan to another lender offering lower personal loan interest rates.

Prepayment Charges

The Axis Bank Personal Loan preclosure charges for loans availed at fixed interest rates are up to 5% of the outstanding loan amount. Borrowers who wish to preclose their personal loans have to pay the prepayment charges, which ends up reducing their overall savings in interest cost. Therefore, borrowers who wish to prepay their loans should opt for it only if the net savings is significant enough after accounting the prepayment/foreclosure charges.