Yes, you can make a bulk repayment of your loan, either partly or fully. However some HFIs charge a prepayment penalty for earlier repayment of the loan. There’s also a limit on the number of times that one can prepay during the year and on the minimum amount that needs to be prepaid during every prepayment. You will have a choice of reducing your EMI by keeping your tenure constant or reducing your tenure by keeping the EMI constant.
You can prepay your loan at any point in time. You can either make a part prepayment or a full prepayment of your loan.
Some HFIs levy a prepayment penalty if you decide to prepay your loan. This charge is made on the loan amount that is being prepaid.
Most HFI’s have a limit on the number and the amount of part payments that you can make. Typically the amount should be the higher of three EMIs or an amount of Rs. 10,000/- and the number of prepayments that you can make during a year is restricted to two. This would again differ from one HFI to another.
The rationale behind the HFI’s charging a prepayment penalty is that they borrow money from their lenders for a certain fixed tenure at a contracted rate. When you make a prepayment, the HFI may suffer a loss, as they may have to disburse the loan at prevailing market rates. The prevailing market rates may be lower than the rates at which they have lent money to you.Hence the prepayment penalty.
Usually HFIs ask for PDCs for a maximum period of three years. Only after the last PDC, you have to hand over a fresh set of PDCs for the next three years or as the HFI instructs. However, if you are an NRI, you will be required to submit PDCs for the full tenure of the loan.
EMI essentially comprises of interest and principal. The amount of interest and principal varies depending upon whether the principal is reducing annually or monthly. In case of a monthly reducing loan, the break up of the EMI into principal and interest depends on the month to which the EMI pertains. Under annual reducing the EMI remains constant over the tenure of the loan but the individual components in the EMI vary from month to month.
PDCs Post Dated Cheques for a certain number of years after which you provide another set of PDCs for the same tenure. DAS Deduction Against Salary. In this case the HFI ties up with your employer. Under this facility, your employer deducts the installment directly from your salary and remits the same to the HFI. Standing Instructions (SI) That’s by giving a written consent to your banker to pay the installment from your account to the HFI every month on a particular date. The HFI ties up with your banker for you to avail of this service. Cash / Demand Draft (DD) – Some HFIs provide for the facility of repayments of installments by way of cash in their office directly or by depositing the amount in a particular HGI account where they have an account. You could also pay your EMI by way of a Demand Draft (DD).
Normally, no HFI gives a time gap to repay your loan. However, incase of an under construction property, you do not pay your EMIs till the time of full disbursement. You pay simple interest at the rate applicable to your loan on the amount that has been disbursed to you by the HFI. This is similar to a delay in starting your repayment of EMIs.
The EMI is considered as the best form of repayment for a loan as it is the easiest to administer. The EMI concept of repayment has been practiced for a long time. It is only now that we are seeing new forms of repayment coming in like the Equated Quarterly Investments, Bullet payments, Moratorium on principal repayments, etc. These forms of repayment however, will take a while to gain popularity and to be accepted as the general form of repayment.
This method of repayment works as follows: The amount paid by way of EMIs is broken up into Interest and Principal at the end of every year. The opening balance of the principal is taken at the beginning of the year. The rate of interest that is charged is calculated on the opening balance. This amount is deducted from the total EMIs paid by you during the year. The difference between the total EMIs paid during the year and the interest on the opening principal is deducted from the opening principal to arrive at the closing balance of principal for the year. This in turn becomes the year opening balance of principal for the next year.
This method of repayment works as follows: The amount paid by way of EMIs is broken up into Interest and Principal at the end of every month. The opening balance of the principal is taken at the beginning of the month. The rate of interest that is charged is calculated on the opening balance. This amount is deducted from the EMI paid by you during the month. The difference between the EMI paid for the month and the interest on the opening principal is deducted from the opening principal to arrive at the closing balance of principal for the month. This in turn becomes the opening balance of principal for the next month.