Bank of Maharashtra Personal Loan Pre-closure Charges

Savings on Interest Cost

Personal loan borrowers can save the cost of interest by prepaying their outstanding loan amount. For instance, if you borrow a personal loan of Rs 10 lakh at 13% p.a. for repayment tenures of up to 5 years, then the EMI would be Rs 22,753 and the total cost of interest would be Rs 3.65 lakh. However, if you prepay your outstanding personal loan amount after a year only, you will be saving up to Rs 2.44 lakh of interest cost.

Lower Proportion of Unsecured Loan in Credit Mix

Credit mix is the ratio of secured and unsecured loans. Because Bank of Maharashtra Personal Loan are unsecured loans, prepaying the loans would help reduce the proportion of unsecured loans in your credit mix. This will also help improve your credit score and increase the chances of availing another loan.

Increased EMI affordability

Banks and NBFCs prefer lending to applicants whose total EMIs, including the existing EMI and the EMIs for new loans are within 50-60% of their total monthly income. As a result, applicants who exceed this limit might have less chances of availing loans. Also, you can easily improve your personal loan eligibility and reduce the EMI/NMI ratio if you prepay your existing personal loan.

Prepayment Charges

As Bank of Maharashtra offers personal loans at floating rate of interest, it cannot charge any pre closure fees from its borrowers. That said, in cases of personal loans availed at fixed rate of interests, lenders can charge prepayment or foreclosure charges. In such cases, prepaying personal loans would reduce the overall interest cost savings. Therefore, the borrowers should consider opting for prepayment only if their net savings in interest costs are significant enough after accounting the pre-closure charges.

Negative Impact on Liquidity

Many borrowers exhaust their existing investments to prepay their loans, which affects their emergency savings that they would have used in emergency situations. Personal loan prepayment using existing savings can also force the borrowers to avail loan at higher interest rates. In this case, borrowers should consider opting for personal loan pre-closure only if they have sufficient savings/emergency funds. Furthermore, borrowers with restricted liquidity can also reduce their repayment burden and cost of interest by opting for a personal loan balance transfer facility to transfer their existing personal loan to another lender offering lower personal loan interest rates.