In 2019, the number of borrowers noted as wishful defaulters were found to be 12% as per the declaration by the Finance Ministry of India. This indicates that a major portion of the Indian population is unaware of the loan repayment procedure.
What are the loan repayment procedures in India?
An essential part of a loan agreement is the repayment process. There are primarily three ways how a borrower can repay a term loan –
- Equated Monthly Instalments
EMI is an amount which is paid to a lender as per the loan repayment schedule. Top financial institutions offer flexible tenors on loans against property where borrowers pick an EMI regime as per their financial capability.
An EMI consists of two components –
- Principal component
- Interest component
The principal component of your EMIs is the principal loan amount which you repay with that month’s EMI while the interest component refers to the portion of the payable interest.
Borrowers are required to pay their EMIs on a fixed date every month until the loan tenor is complete. The EMI amount remains the same, considering that the loan is availed on fixed interest rates.
Borrowers can avail the online loan repayment facility by paying their EMIs through net banking or by visiting the official website of the concerned financial institution.
During the initial stages of your loan tenor, the interest component is relatively higher while the principal component is comparatively higher during the final stages of your repayment period. Since loans against property are secured loans, financial institutions disburse loan amounts up to Rs.3.5 crore with tenors ranging from 2 to 20 years.
In case of such loans with substantial amounts and long tenors, the greater portion of the loan EMIs will comprise the interest component which will decrease as the debt repayment tenor advances whereas the principal component will gradually increase leading up to the end of your loan tenor.
- Part prepayment
Borrowers availing a loan against property form their desired financial institution can opt to part-prepay a certain amount to reduce their loan liability. As a borrower, a part prepayment helps reduce either the applicable EMIs or the tenor or both, depending on the amount of part prepayment made. Note that with a part prepayment, the funds go towards repaying the principal loan amount availed minus the charges applicable as specified by the lender.
- Foreclosure
Loan foreclosure is a type of prepayment facility where borrowers can repay the total remainder loan amount with a single payment. You can also contact your lender to select the number of EMIs you are willing to pay before foreclosing the loan.
When to start your part prepayment or foreclosure?
If you are considering in part prepayment or foreclosure for your loan repayment, it is advised to be aware of these following factors –
- Early in your loan tenor
As the interest component in your loan EMIs is higher during the initial stages of your loan tenor, it is beneficial to opt for a part-prepayment early in your repayment period. You can opt to prepay your loan against property in easy steps.
- Consider part-prepayment fees
Financial institutions usually charge a certain fee for such repayment procedures. So, you should be aware of the fees and charges for loan against property before opting for a part-prepayment.
A reputed HFC, Bajaj Housing Finance Limited charges nominal part-prepayment and foreclosure fee on mortgage loans. This HFC also brings forth pre-approved offers on loans against property to ease the application process and make it easier for borrowers to apply for such credit. Check your pre-approved offer by providing your name and phone number.
Not only can you use the above options for your education loan repayment but also opt for online education on EMI. Hence, it is advised to consider these repayment options before availing a mortgage loan.