Loan pre-payment: If you have to repay the loan before time, then know this, otherwise you may incur a big loss...

The price of houses is high, hence people often prefer to buy a house by taking a loan instead of paying lump sum money. Many times people do this even when they have enough money. There can be many reasons for this but two main reasons are understandable. First, a lot of money is not blocked anywhere at once and liquidity remains available for emergencies. The second reason is that before giving a loan on any property, banks inspect it thoroughly, this helps the buyer to know whether the property he is going to buy has any flaws. Buyers often think that by taking a home on loan, the loan will be settled quickly by prepayment.

But is prepayment always right? The answer is- no. Many banks impose penalties on the customer for this. Now the question arises as to why any institution would shy away from withdrawing its money early. The simple answer is that the bank will not get the interest it was expecting on the loan given for a fixed period due to prepayment. Interest is the profit of the bank. Therefore, seeing his profits decreasing, he imposes a penalty on the customer. However, there are many banks which do not impose penalty. For this, you will have to talk to the bank only while getting the loan approved.

What other loss apart from the penalty?
Many times the penalty imposed by banks is so high that you may be better off not making prepayment. But the penalty is not the only factor that you should think about before making a prepayment. As we said above, paying a large amount at once affects liquidity. This means that there may be a shortage of funds in times of emergency. At that time, there may be a need to extend hands in front of others. The second reason is tax. Tax exemption is available on both the principal and interest of the home loan. You can get a rebate of up to Rs 1.5 lakh on a home loan under Section 80C of the Income Tax Act. Apart from this, you get an exemption of up to Rs 2 lakh on interest. By making a prepayment you are giving up these benefits.

What to do?
If you want to finish the loan quickly, then first of all keep in mind that you have enough funds for emergencies. You can also do this by prepayment of the loan little by little. With this, the tenure of the loan will also reduce and you will also continue to enjoy tax benefits. Even if your bank is not imposing any penalty, you can consider prepayment. According to RBI rules, if the interest rate of the loan is floating then the bank cannot impose a penalty on prepayment.

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