Is it worth prepaying your ICICI personal loan? Key factors to consider

If you have an ICICI Bank personal loan and are considering repaying the loan before its due date, the bank allows you to repay the personal loans before the completion of the loan tenure through prepayment/ foreclosure. Early repayment can help in cutting down on the total interest burden, however before doing so, you must know the applicable charges, the conditions of eligibility and the process.

Types of early repayment

1. Part prepayment

• In this case, you can repay some of the outstanding loan balance before the due date.
• The EMI can be reduced or the loan tenure can be shortened.
• The part prepayment is subject to certain terms and conditions as suggested by the bank.

2. Full prepayment (Foreclosure)

• In this prepayment, you get the option to close the entire loan amount before the scheduled tenure.
• This will save future interest payments but may be accompanied by foreclosure charges.

ICICI personal loan foreclosure charges

Source: Paisabazaar

Advantages of prepaying ICICI personal loan

Interest cost savings

• Payment of a personal loan in advance reduces total interest burden.
• Early payment of loan in the first tenure fetches higher interest savings.

Better credit mix

• Prepayment of personal loans does not alter your credit mix.
• A blend of secured and unsecured loans are a good way to increase your credit score and make yourself more eligible for future loans.

Improved loan eligibility

• Lowering your EMI burden by prepaying an existing personal loan also increases your chances of getting future loans approved.
• Borrowers whose total EMIs are less than 50% – 60% of their income are preferred by lenders.
• The more a borrower goes over this limit, the less likely they are to get desired loan deals.

Considerations before prepaying an ICICI Bank personal loan

Impact on liquidity

• Using savings or investments to prepay a loan can reduce emergency funds, making it harder to handle unexpected expenses like medical emergencies or income loss.
• It’s advisable to prepay only if sufficient emergency funds are available.
• An alternative to reducing loan costs is opting for a personal loan balance transfer to a lender with lower interest rates.

Prepayment charges

• ICICI Bank charges 3% + applicable taxes on the outstanding principal for preclosure.
• Foreclosure is allowed after the first EMI payment, but borrowers who have paid 12+ EMIs are exempted from these charges.
• Since preclosure fees impact overall savings, you should ensure the benefits outweigh the costs before prepaying.

In conclusion, prepaying your ICICI personal loan is a wise decision if you want to get rid of your debts or want to improve your debt utilisation ratio. However, before you decide on foreclosing the loan, you must analyse the charges you will be bearing.

(Note: Raising a loan comes with its own risks. So, due caution is advised)