A personal loan is amongst the most used financial product in Dubai. These loans are in great demand when compared to other kinds of loans. Personal loan in Dubai can be utilized for any type of need unlike vehicle loan or home loan, which are confined to the purpose they can be obtained for.
The question then is:
How can you use a personal loan? You can use it for traveling, for grand festival celebrations, for purchasing gadgets, for wedding preparations, for household purposes, and so on.
Although a lot of you opt for a personal loan with an aim of pre-paying it before the tenure ends. Many of you still remain doubtful if they should or should not use this option.
But, is it always beneficial to pre-pay personal loan in Dubai?
At the time of taking a loan, most of you will go for long-term personal loans with low interest rates. This way, the EMI paid every month will be low, however, the interest rates will become high over the loan tenure.
If you have any surplus funds with you, you can use this saving or cash for the pre-payment of the outstanding personal loan.
There are various benefits of making pre-payment on your personal loan. The personal loan benefits are calculated depending upon the sum outstanding.
It is good to be free of debt, but when you take such steps, it is necessary to make sure that you do not spend a lot on pre-closure charges. Check the tenure of the loan before you decide whether to pre-pay your loan or not. Let’s suppose your loan tenure is only 6 months or less, it is recommended to not pre-pay the loan.
Do not take actions by assuming anything; speak to the lender before you initiate a request. Make sure you how to process it and what are the kinds of charges related to this pre-closure. After calculating these, evaluate the amount you will be able to save and whether it is worth the funds you are spending. Go ahead only when the option is worthy, then request for the pre-payment of your personal loan.
Here are a few advantages of the pre-payment of personal loan.
- Reduction in EMI amount and Loan Tenure
If you have obtained a personal loan of a certain amount with tenure of three years, you can pre-close your loan whenever you have extra cash. By doing so, your monthly installments will reduce, and there will also be no need of holding the debt commitment for a longer duration.
The quicker a loan gets cleared, the lower will the debt burden. The loans have a period known as lock period, after which, it is possible for you to pre-pay the loan amount. You can use the lock period for saving enough cash for pre-paying the loan.
Simultaneously, you can plan on investing the installment amount in other investments that offer high returns. The lock period on the personal loan in Dubai must be taken well into consideration. You must always make use of such time frames for planning your finances.
There is no such way as ideal, right or wrong. You should consider your income as well as your capacity for bearing debt in order to decide when to make pre-payment of the personal loan amount.
- A Better Credit Score
Your credit score is directly linked to your outstanding debt. Whenever you make early settlement on your loan or clear your outstanding credit card debt, it will reflect on the credit score. Pre-payment or early settlement and part payments are considered to be smart ways of raising your credit score.
Depending upon this credit rating, the banks and financial institutions consider whether or not to offer loan in the future. Early settlement of personal loan is equal to making successful repayment on the loan outstanding and closing the debt. This will give good feedback on your credit score and the lenders will readily offer loans in the future whenever you need.
- Reduction in the Debt Burden
It is possible that you might have multiple loans and credit card debts. In such a situation, if you pre-pay your personal loan, it will help you in reducing the burden of your debt. This way you can now easily focus on repaying the other debts.
In a Nutshell!
These are a few advantages of making pre-payment of personal loan. Early settlement charges are applicable when you select a fixed personal loan interest rate and this charge varies from 3-5 percent depending upon the conditions of the bank.
There are most of the banks, which do not charge early settlement fees. Hence, it is important that you speak to the lender directly for understanding their specific terms & conditions.
It is advised that you analyze all the information available thoroughly and a smart choice of whether to make pre-payment on the amount outstanding on the loan or not.
Disclaimer: This content does not necessarily represent the views of IWB.