Can Your Personal Loan EMI Change During the Loan Tenure?

Personal Loan EMIs usually remain constant throughout the repayment period when the loan is offered at a fixed interest rate. This helps to plan your monthly outflows easily. However, under certain cases—such as part-prepayment of the principal or availed personal loan at a floating rate—the EMI amount may change during the loan tenure.

Here are the following circumstances where your personal loan EMI can increase or decrease during your loan repayment period. Understanding when, why and how this can happen is important to make informed financial decisions. 

In case of a rate change in the floating interest rate

Some banks, especially public sector banks, offer personal loans at floating interest rates which are linked to their external benchmark rates. When these benchmark rates change, the applicable interest rate of a personal loan also changes. You can increase your EMI to keep the same repayment tenure, or increase your loan tenure to keep the EMI amount unchanged, or a combination of both. Note that EMI would only change if you availed a personal loan with the EMI change option. 

If you prepay part of your personal loan

Another reason for EMI change during the loan tenure is if a borrower makes partial prepayments on a personal loan. As the outstanding principal reduces, you have the option to:

• Either reduce your EMIs for the same repayment tenure, or 
• Keep the EMIs the same by opting for a shorter tenure. 

You can choose to reduce your personal loan EMIs if the ongoing EMI is not manageable. Do note that missing personal loan EMIs can negatively impact your credit score. But, if you have surplus funds, you can opt for reducing personal loan tenure as it would reduce your overall interest cost of your loan.

Do check charges, locking period and limit before making prepayments

• Personal loan lenders levy prepayment fees on fixed-rate personal loans. The personal loan prepayment charges can usually go up to 4% of the outstanding principal amount. RBI has barred lenders from charging prepayment fees on floating-rate loans.
• Some banks and NBFCs put a lock-in period, i.e., until you repay a pre-determined number of EMIs, you won’t be able to prepay your EMIs. 
• Some lenders also set a limit on loan prepayment. For example, if you have availed a personal loan from HDFC Bank, you would only be able to prepay up to 25% of your principal outstanding after payment of your first EMI. The bank allows prepayment once in the financial year and twice during your personal loan repayment tenure.