RBL Bank Personal Loan Preclosure Charges

Increased EMI affordability

Banks usually consider lending to applicants whose EMI/NMI ratio is within the limit 50-60% of their total monthly income, that includes their existing EMIs and EMIs for new loan. Applicants exceeding this limit have fewer chances of getting their loan application approved. Thus, existing personal loan borrowers of RBL Bank can improve their loan eligibility by reducing their EMI/NMI ratio through prepaying their existing personal loan.

Lower proportion of unsecured loans in credit mix

Credit mix is the ratio of secured and unsecured loans. RBL Bank personal loan are unsecured loans and therefore prepaying the personal loans would help applicants lower the proportion of unsecured loans in their credit mix. This will further help borrowers improve their credit score and increase their chances of availing loans in the future.

Savings on cost of interest

Personal loan borrowers can also save on the total interest cost that they would have to pay during the loan repayment period. For instance, if a borrower avails a personal loan of Rs 5 lakh at 17.50% p.a. and repayment tenures of 3 years, the EMI would be Rs 17,951 and total interest cost would be Rs 1.46 lakh. That said if a borrower pays the outstanding loan amount after 1 year, he can save interest cost of up to Rs 69,512.

Prepayment charges

RBL Bank preclosure charges can go up to 5% on the outstanding loan amount in cases of personal loans availed at fixed interest rates. Borrowers who wish to pre-close their personal loan accounts can do so by paying the prepayment charges, which will also reduce overall interest cost savings. So if a borrower should only prepay loan if he has enough net savings after accounting the personal loan pre-closure charges.

Negative impact on liquidity

Most personal loan borrowers exhaust their existing investments to prepay their personal loans. This negatively impacts their emergency savings that they would have used in financial emergencies. Therefore, this can also force a borrower to avail loans at higher interest rates to meet financial needs. In this case, borrowers should only opt for personal loan pre-closure if they have additional funds or have sufficient savings. Moreover, personal loan borrowers can also reduce their repayment burden by opting for a personal loan balance transfer facility i.e., by transferring their existing personal loans to other lenders offering lower personal loan interest rates.