There are a lot of things you need to bear in mind when you think about prepaying a loan. Prepayment penalties and various other charges differ from bank to bank. In such situations, the actual amount to prepay becomes slightly higher.
The first thing that your lender is going to look at is the source of funds that you have managed to procure to prepay the loan amount. If it is from a borrowed source, as in from another bank or financial institution then you are obviously going to have to pay the penalty charges.
But if it is from your private circle, i.e. if you have managed to raise funds from your family and relatives, then you may not be subjected to prepayment penalties, provided you are able to show some proof to the bank the original source of fund. This can be possible by providing the details from the bank account statement which shows the deposits from your relatives’ accounts. Cheque deposits are quite helpful in such situations.
These days it has been observed that, most lenders do not buy the argument by the borrower that the funds are from their private sources because of absence of proof. In such situations try to get a one on one conversation with your lender and sort out the problem mutually. The chance of waiving off the pre payment charges depends upon the negotiating ability of the borrower.
Moreover, it is advised that, borrowers should try to borrow from those lenders who do not have pre payment charges. It becomes important in situations where the loan in question is a home loan. Since the loan tenor may go up to 20 years, prepaying the loan is what is advised. But choosing an appropriate lender who can render to your needs is also required.
In certain situations, transferring the loan amount to another bank can be suggested provided that the loan tenor of 10-15 years is still left. Else considering average prepayment penalty of 2%, you will not benefit from such a transfer.