Mr. Anurag Mahatre, a resident of Mumbai, had availed a Personal Loan for Chartered Accountants worth Rs.20 lakh from a reputed online lender to set up his firm.
Although he had availed a personal for Rs.20 lakh and was paying the EMIs on time for the last 2 years, he thought of prepaying the CA loan.
Yes, his ancestral properties got sold in the village which helped him get a good amount and because he got the money, he thought of closing the loan. However, he was still unsure if it was a good decision or not! If you are confused like him, let’s provide some meaningful insights on a CA loan repayment.
5 valuable factors to consider while prepaying a CA loan Prepayment charges Most of the leading banks and non-banking finance companies may impose a penalty for prepaying a Personal Loan for Chartered Accountants. It depends on your service provider if they will charge some penalties or not. Another thing worth mentioning is that you should try not to make prepayments in one go to avoid being charged heavily. Rather prepay it in one, two or three attempts and reduce the penalties.
Anyone who is all set to prepay his/her CA loan does it to save on interest charges. However, it is a misconception that prepayments in the initial stages lead to savings and not in the later stages. Hence, there are savings if you prepay a CA loan in the later stages as well. Thus, employ a personal loan foreclosure calculator to know if prepaying would be profitable or not.
Impact on your contingency fund
One of the other vital factors while considering to prepay a CA loan is whether it will affect your emergency fund, if any, or not! If you see that it is taking a huge chunk out of your emergency fund, consider repayment else not. You should not risk using your contingency fund to prepay any loan as its best reserved for emergencies.
The ROI from your existing investment
The percentage of your returns from your current investments such as mutual funds, insurance policies, equities and bonds, fixed deposits may also impact the decision of repaying a CA loan. You need not be using the ROI of your investments for repayment of the Personal Loan for Chartered Accountants if you had invested for reaping higher ROI.
Opportunity cost of not having an investment
Opportunity cost is the expenditure of selecting one choice over the other! Thus, the opportunity cost not keeping invested is generally the ROI that you are not receiving by not investing and prepaying your Personal Loan for Chartered Accountants instead. This is right in case of stocks, equities mutual funds and more, during the market corrections, at the time of being available at reduced NAV. As a result, you should not be diverting your contributions reserved for reaping higher ROI via mutual funds to make way for the prepayment of the CA loan.
The Bottom Line
If you are a Chartered Accountant who had availed a loan and had some surplus cash in hand, you may first assess your financial conditions as per the discussed pointers. Always remember that the repayment of any loan may or may not be chargeable, and you must contact your existing or proposed lenders to dig deeper! If you think that applying for a CA loan will help you ease its load without disturbing other financial assets, ROI, and plans, then only go for it. It would be better to consult a known finance expert to help you out in this matter if you are still unsure of taking the next steps.