Advantages of Central Bank of India Personal Loan Preclosure
Interest Cost Savings
Existing borrowers opting for Central Bank of India Personal Loan preclosure can save on interest costs which they would have otherwise incurred during the loan term. For example, if you avail a personal loan of Rs 10 lakh at 10% p.a. for 5 years, then your EMI will be Rs 21,247 and the total interest payable would be Rs 2.75 lakh. However, if he repays the outstanding loan amount after a year, his savings on interest costs would be up to Rs 1.82 lakh. Note that prepaying a personal loan in the initial stages of its tenure would result in higher interest cost savings.
Lower Proportion of Unsecured Loans in Credit Mix
Credit mix is the ratio of both secured and unsecured loans for any individual. As Central Bank of India Personal Loans are unsecured in nature, prepaying the loan will decrease the total proportion of unsecured loans in the credit mix. Moreover, increasing the proportion of secured loans in the credit mix will help you boost your credit scores and thereby, improve your prospects of availing another loan.
Increased EMI Affordability
Lenders prefer offering loans to applicants whose total EMIs (including the EMIs both from existing loans and proposed new loan) are within 50% – 60% of their total gross/net monthly income. Hence, loan applicants exceeding the above mentioned income limit have lower chances of availing personal loans. However, loan applicants can bring down their EMI/NMI ratio to within the 50% – 60% bracket by prepaying their existing personal loans. Doing so will also help them improve their personal loan eligibility.
Personal loan applicants should also check Paisabazaar’s personal loan EMI calculator to figure out the optimum loan tenure and EMI for their proposed personal loan depending on their repayment capacity.
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Disadvantages of Central Bank of India Personal Loan Preclosure
Negative impact on Liquidity
Many personal loan borrowers deplete their existing investments to prepay their loans. Doing so ends up impacting their emergency funds which they would have typically used for medical emergencies, loss of job/income or other such contingencies. Prepaying personal loans using existing investments may also force borrowers to avail loans at higher interest rates to meet their financial goals or deal with emergencies. Existing borrowers should opt for personal loan preclosure only if they have sufficient emergency funds. Personal loan borrowers can also reduce their repayment burden and interest costs by opting for the personal loan balance transfer facility wherein they get to transfer their ongoing loan to another lender providing lower personal loan interest rates.
Prepayment Charges
The Central Bank of India Personal Loan preclosure charges are nil as the lender provides personal loans at floating interest rates. However, lenders offering personal loans at fixed interest rates are free to levy prepayment/foreclosure charges. Personal loan borrowers who wish to preclose their loans have to pay the personal loan preclosure charges, which ends up reducing their overall savings in interest cost. Therefore, borrowers should opt for personal loan prepayments only if the net savings is significant enough after accounting the prepayment/foreclosure charges.
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