Updated on October 4, 2023
When a loan is sanctioned, a few types of loans for example, big-ticket loans like home loans may not be disbursed in one go. This gradual disbursal is referred to as partial disbursement. Given here is the meaning of this term and its related details.
Meaning of partial disbursement
Partial disbursement is a term used in the context of loans, particularly in scenarios where the entire loan amount is not disbursed to the borrower in one lump sum. Instead, the loan is released in stages or partial payments based on specific milestones or conditions outlined in the loan agreement. This approach is often used for large loans, such as home loans or construction loans, where funds are required progressively as a project or purchase advances.
What are the benefits of partial disbursement?
Cost Savings – Borrowers save on interest costs because they are charged interest only on the disbursed amount, not the entire loan amount, during the partial disbursement phase.
Control – Lenders have greater control over the release of funds, ensuring that the borrower is meeting specified project or education-related milestones.
Risk Mitigation – Lenders reduce their exposure to risk by disbursing funds incrementally, particularly in cases where the loan is linked to a project’s progress.
What are the top considerations in partial disbursements?
Borrowers need to plan meticulously for expenses related to their projects or education, ensuring they have adequate funds for each milestone. Maintaining precise documentation of expenses, invoices, and project progress is vital to facilitate the loan disbursement process and ensure timely repayment. While partial disbursements may lower immediate interest costs, borrowers should be mindful of the eventual rise in EMIs once the full loan amount is disbursed.