The ease with which you can get a two-wheeler loan in Chennai makes it unnecessary for you to liquidate your savings to fund your bike purchase. You can keep your savings safe to address an emergency need that you may face sometime in the future. However, this is a great opportunity to start practicing financial discipline that can help you all your life. By adopting the right habits, you can save funds and prepay your two-wheeler loan early and end the financial obligation you take up.
However, before you do this, there are a few things to keep in mind.
Does the lender allow prepayment?
The first step when you are thinking of taking a loan is to study the two-wheeler loan documents thoroughly so that you understand all the terms and conditions without ambiguity. If you have plans of prepaying the loan if and when possible, then pay attention to any prepayment clauses that detail under which conditions this is allowed.
Here are some aspects to check:
- Is prepayment allowed?
- Is there a minimum period before which you cannot repay the loan?
- Is there a maximum amount that can be repaid?
- Is it possible to partially prepay the loan?
- Is there any kind of penalty that you may incur for prepayment?
- Is there any other condition for prepayment that can add to the cost of the loan?
All of these details must be mentioned in your two-wheeler loan documents. Once you have verified that you can prepay the loan with no cost incurred, you can plan for the same. Store the two-wheeler loan documents with you safely once you have taken the loan so that you can check these aspects if you plan to prepay in the future.
Planning for prepayment of your two-wheeler loan in Chennai
- Use the extra cash to prepay: If you have any extra cash that has not been invested anywhere and is earning a low income, utilize the funds to prepay your loan and enjoy the savings that you get by eliminating monthly repayments. If you have a sudden financial windfall through a pay raise or bonus too, you can use those funds to repay the loan.
- Budget your expenses: A simple way to save money that can be used to prepay your loan is to budget your monthly expenses, cut out unnecessary ones and trim your monthly outgo. In a few months, you can save enough to prepay your two-wheeler loan at least partially.
- Using a debt consolidation loan: If the interest rates have dipped since you took your two-wheeler loan, then you are paying out more than you need to. Use a debt consolidation loan to club all your outstanding loans into one current lower-interest loan that can be managed easily and paid off more affordably.
- Switch to bi-weekly payments: A simple and smart way to repay the loan earlier without actually prepaying in a conventional way is to switch to a bi-weekly repayment mode. Check with your lender if this is possible. This lets you make more repayment installments per month meaning that you are paying off the loan twice as fast as you planned originally. Since this has accelerated your repayment, you also save on the interest overall that you pay for the loan.
Prepaying a loan should be your choice only if you are sure that this makes better financial sense than repaying on time as per schedule. It does not make sense for you to take on prepayment if you will be taking a more expensive loan to fund it or you will be breaking up savings that are earning more interest than you are paying for the loan currently.
Make a thorough study of whether you stand to gain substantially from prepayment or not before you take the final decision on this strategy. Also, as mentioned earlier, check with the provider of your two-wheeler loan in Chennai if prepayment is allowed with no penalties or setbacks of any sort that can make the strategy fruitless. You should be finalizing your prepayment of the outstanding vehicle loan when you have factored all of these in.