How does prepaying help in repaying my business loan?

Business Loan Online

Business loan or Buddy Loan is the lifeline of the small and medium business owners in India as it gives them the capacity to revamp, reconstruct, and expand their business. Many banks and financiers in the market provide easy business loans with less documentation with a fixed tenure to the borrowers. Once the loan is availed, the borrower has to understand the repayment mechanism to the financer. Equated monthly instalments or EMIs' is a term known to everyone and is the way of repayment to the lender. 

Business loan keeps going for a fixed number of years. In any case, if a borrower chooses to reimburse the credit before the tenure end, the bank can't gain the premium that was fixed at the hour of advance processing. Thus, the loan specialists charge a prepayment expense on the prepayment.

Even with the lender asking for a prepayment charge, it is monetarily beneficial for the borrower to make a prepayment in parts or in full in the early years of the loan tenure. 

Prepayment charges

The prepayment charges in SME advances differ from lender to lender. On the off chance that you are pre-covering the advance also called advance fore-closure, the prepayment expense will be around 4% of the outstanding principal amount, and the part of the principal paid back to the lender in the last 12 months.

In the event of part prepayment, a few banks don't charge any expense on if you are pre-settling up to 25% of the outstanding principal amount. Goods and services tax is also levied on the prepayment charges as applicable.

How is prepayment beneficial?

It is advisable to check with your bank or financer at the start of the loan about the prepayment charges and other terms and conditions involved. The preclosure and prepayment details are also mentioned in the proposal form shared by the bank with the borrower. One should read it in detail and check with the lender if there is an ambiguous term involved. Moreover, it is an excellent choice to prepay your loan as it removes the burden one carries during the tenure of the loan.

Prepayment can help you save a considerable amount of money if you do it the right way. As mentioned above, try to prepay the loan as early in the loan tenure as possible to save most on business loan rates.