Many borrowers tend to take the loans to buy a home or to purchase a car. Some even avail loans for fulfilling personal needs or to meet the medical emergency requirements. Some avail a loan to support their higher/technical education in India or abroad. All of these loans have a perfect and well-planned schedule for repayment along with the interest rates and even penalties. If the customer has applied for the amortization of the loan, then the lender also allows converting a part of repayment instalment to cover up the principal amount. However, some borrowers opt directly for the prepayment that is, paying off the full amount of loan in a lump sum amount at one time. Reasons for such prepayment could be:
Prepayment has its advantages and disadvantages too. There are several advantages of making prepayment as freedom from market risks, benefit from lower interest rates and most importantly completion and payment of loan obtained. However, the prepayment is also a subject to risks, especially where mortgage investments are involved to make payments. Also, some banks and financial institutions levy prepayment charges to the borrowers to compensate for finishing the deal early. There are some other costs also involved, which may prove harmful for the finances of the prepaying borrowers.
Prepayment calculators are based on the basic model of calculating the installments for the customers. However, the prepayment calculator would generate full amount of the loan balanced and to be repaid at a given date, with interest payments. This type of calculator would take into consideration the following things such as:
The calculator would measure all these factors and inform the total amount that the borrower has to pay in the process of prepayment to the lender.