Kotak Mahindra Bank Personal Loan Preclosure Charges

Lower proportion of unsecured loans in credit mix

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

Savings on cost of interest

You can also save on the total cost of interest that you would have to pay during the repayment period. For instance, if you avail a personal loan of Rs 12 lakh at 10% p.a. and repayment tenures of 5 year, the EMI would be Rs 25,496 and total interest cost would be Rs 3.29 lakh. That said if you pay the outstanding loan amount after a year, you can save interest cost of up to Rs 2.18 lakh.

Increased EMI affordability

Banks consider 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. For that reason, applicants exceeding this income limit might have less chances of availing loans. That said, you can easily improve your loan eligibility and reduce the EMI/NMI ratio if you prepay your existing personal loan.

Prepayment charges

Kotak Mahindra Bank charges a prepayment fee of up to 4% on the outstanding loan amount in cases of personal loans availed at fixed interest rates. Customers who wish to pre-close their personal loan accounts can do so by paying the prepayment charges, which will also reduce their interest cost savings. So you should only prepay your personal loan if you have enough net savings after accounting the prepayment 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 borrower to avail loans at higher interest rates. In this case, borrowers should only opt for personal loan preclosure if they have sufficient savings/emergency funds. Moreover, 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.