I have taken a long term bank loan.....say 10K. Suppose the interest charged is 10 percent. Now, I have a lot of surplus money with me due to unexpected cash inflows. I want to reduce the interest amount charged by the bank from me. If I pay off 70 percent of the loan amount, will I be charged less interest? Are there any different rules regarding the same in India and USA?
If I pay off 70 percent of the loan amount, will I be charged less interest?
Yes, because when there's less debt (aka "the balance") to charge interest on, just as when you pay it off "normally", there's less interest charged.
Note that the loan contract might stipulate:
- prepayment penalties, or even
- forbid prepayment.
That's quite rare in the US (except for some student loans), but I don't know about India.