Lower Prepayment Penalties
  • Prepay unsecured loans first. Though the penalty may be 3 to 5 percent of the loan amount, the saving on the interest and post-tax benefits will cover the costs. Small business owners with a solid credit history may be able to negotiate prepayment costs.

  • Partial prepayment is permitted by some banks in India without paying a penalty. Check the terms of the agreement.

  • Prepayment penalties are waived after specific time periods (6 to 12 months) from the date of the loan disbursement.

  • If a loan is prepaid from the borrower’s personal savings rather than a debt handling agency, the bank may consider waiving the penalty.

  • Take a longer term loan. Loans with longer terms (20 years or more) have lower monthly payment costs. This helps free up cash for working capital needs. Here is an example:

    • Loan Amount: Rs 200,000
    Interest Rate: 8 %
    Monthly Payments
    For a 15 year loan: Rs 1,911.30
    For a 20 year loan: Rs 1,672.88
    For a 25 year loan: Rs 1,543.63

  • Use a line of credit instead of a loan. Unlike most loans, a line of credit allows borrowers to pay back funds free of cost. Interest is applicable for the amount utilized. Generally borrowers must square their account monthly for some initial period of time.
 

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