6 Easy Steps to Prepay Your Loan Against Property

A loan against property, commonly referred to as LAP, is one of the most popular ways to raise money for individual or business needs. Nonetheless, prepayment can result in considerable interest savings and ease financial pressures. This guide highlights six simple ways that can be adapted by Indians who want to repay their loans early and become debt-free within the shortest time possible.

If you are interested in learning how to clear loans faster or wondering how to pay home loans faster, use the tips presented here.

Also Read: Myth Busters: Decoding Myths vs. Facts for LAP

1. Know all your loan details before initiating prepayment.

Before making any prepayment, it is paramount that one understands everything about their loan, including:

• Principal amount balance and the loan tenure remaining.
• Interest rate type, i.e., whether fixed or floating rates.
• Charges applicable for early repayment, particularly on fixed-rate loans.

For instance, under the new Reserve Bank of India guidelines, there are no prepayment charges on floating rate loans, thus making it easier for borrowers to close them prematurely.

Having a clear picture of your loan terms will help you plan how to clear loans faster without incurring unnecessary costs.

2. Organise your Finances

For you to prepay your loans effectively, take time to get your financial aspects in order. Here are steps that should be implemented immediately:

• Create a monthly budget — Look out for areas to minimise unnecessary spending.
• Save some cash for a rainy day — Consider having an emergency fund before going into any loan prepayments.
• Extra income division — Leverage annual bonuses, tax refunds, and income from part-time jobs to make a single, immediate full-scale payment.

Managing money well can help you quickly pay off loans and lower repayments significantly.

3. Make Lump-Sum Payments

Lump sum payments are deemed among the most successful techniques in prepaying loans.

Take a look at how it will work:

• In order to reduce your principal amount, use any extra money you may get to pay back the loan as soon as possible.
• The advantage is that it reduces the overall interest paid throughout the loan term compared to regular monthly payments.
• Lump-sum payments are especially effective for those looking to repay home loans faster, as they consistently shorten the loan tenure.

4. Raise the EMI amount

Another simple and effective way to prepay your loan is by increasing the Equated Monthly Installments (EMIs).

Consider increasing your EMI by 5-10% if your income grows. This would bring down the principal amount balance.

Most banks in India offer the option to structure EMIs without additional charges. Additionally, opting for higher EMI amounts helps accelerate loan repayment and achieve debt-free status sooner.

5. Opt for Loan Balance Transfer

If your current lender charges high interest rates, look out for another bank loan offering lower rates. This particular exercise is popularly referred to as a loan balance transfer. You should compare the rates from different lenders.

After this, select a bank that gives you lower interest combined with convenient prepayment terms. Changing your loan provider could make the whole loan less while making it easier for you to understand how to clear loans faster.

6. Consider Multiple Part-Payments

Instead of waiting until you have accumulated a large amount before making a repayment, make frequent part-payments when finances allow. Some Indian lenders have no limitations on the amounts one can pay back partially.

These contributions are assigned directly towards offsetting the principal sum, therefore reducing the total interest charged. Even small amounts like ₹10,000 every quarter can accelerate the repayment process.

This strategy will reveal how you can make your housing loan repayment process effective and counter your loan before the actual loan term ends.

Also Read: What is Loan Against Property? - Features, Eligibility, Documents, and more.

Benefits of Prepaying Your Loan

Below are some key advantages of prepaying your loan against property:

1. Interest savings — Settlement helps decrease the tenure of the loan, which in turn reduces the interest burden.
2. Debt-free life — Paying back your debts before time guarantees financial freedom.
3. Protected credit score — Whenever you repay loans on time and complete them early through prepayments, your CIBIL score is always positively impacted.
4. Reduced stress — A lower loan burden is known to bring peace of mind.

The Bottom Line

Repaying the loan against property through prepayment is advisable as it can save you money while ensuring financial independence. Hence, just follow the above mentioned steps, and your loan repayment will be manageable with minimal interest burden. Today is the best day for planning and making meaningful changes to be free from debt.

To begin a financially stress-free life, apply for a loan against property for proper funds and flexible loan repayment options. Moreover, a loan eligibility calculator also helps in determining if you’re eligible for a loan or not.

FAQs

Q.1. Can I prepay a loan against property?

Ans. Whether prepayment is allowed on a loan against property depends on the lenders’ terms. Most often, loans against property can be pre-paid, but borrowers need to review the agreement for details.

Q.2. How do I settle a loan against my property?

Ans. Reach out to your lender to initiate discussions about loan settlement. Obtain the current payoff amount, which is a combination of the principal and interest amounts. Clarify any additional fees or penalties associated with early settlement.

Q.3. How to clear a loan against property?

Ans. Here are two ways to foreclose your loan against property.

• Full prepayment — By opting for full prepayment, you can clear the entire outstanding loan amount at once.
• Partial prepayment — With this option, you pay off a portion of the outstanding loan amount before the loan tenure ends.

Q.4. What happens if I fail to repay a Loan Against Property?

Ans. If you fail to repay a Loan Against Property, the lender has the right to take possession of the mortgaged property and sell it to recover the outstanding loan amount. It's important to ensure timely payments, as the property is used as collateral for the loan. Lenders typically provide options like restructuring or extending the loan tenure in case of repayment difficulties, but it's crucial to communicate any issues early.

Q.5. How is the loan amount determined for a Loan Against Property?

Ans. The loan amount you can receive is primarily based on the market value of the property being mortgaged. Lenders usually provide up to 60-80% of the property’s market value, depending on the type of property and your financial profile. The final loan amount is also influenced by factors such as your income, credit score, and repayment capacity. The higher the value of your property and your ability to repay, the larger the loan amount you may be eligible for.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com