Personal Loan Preclosure

When a borrower pays off a personal loan before the loan’s term is over, the debt is said to have been preclosed. This relates to the loan’s principal sum. The borrower may benefit greatly from a loan preclosure. Therefore, always consider paying off the debt early if you can afford to do so. Having said that, it’s crucial that you properly read the loan agreement and comprehend all of the preclosure terms and circumstances. If you have any questions regarding the preclosure of the loan, you can also speak with your lender.

What is Personal Loan Preclosure? 

Personal loans can be useful in extreme financial necessity cases, such as weddings, home repairs, emergency medical care, etc. However, you should consider pre-closing your personal loan so that you are free of it whenever you have extra cash. The majority of banks let you pre-close a personal loan by paying the balance in full at any time following six instalments. However, doing so results in a pre-payment penalty.

What is the Personal Loan Preclosure Procedure?

If you want to foreclose on your personal loan, you must follow the steps below:

Reach out to your lender

The borrower must first contact the lender and generally submit a written application outlining their desire to foreclose the debt. Along with all other crucial client information, the application must include the current loan account number.

Making Principal Payments 

The amount due is determined once the lender receives the application and accounts for both the date of foreclosure as well as the interest that has already been paid. The date of foreclosure is then disclosed to you, and you have until that time to make the payment. While making the foreclosure payment, the foreclosure charges are added.

Obtain the certificate of no dues

Make sure you obtain a no-dues certificate (or NOC) from your lender attesting that all payments have been received and there are no outstanding balances. All other crucial customer information must also be included on the certificate.

Prepayment vs. Preclosure

Prepayment of Loan	Preclosure of Loan
Early repayment of loan, partially or fully.	Paying off the entire loan amount before the loan term ends.
Reduces the outstanding principal, lowering interest obligation.	Remarkably lowers the interest burden and closes the loan earlier than expected.
Allows depositing extra funds to minimize interest and shorten tenure.	Requires an application to the bank, which calculates the foreclosure balance.
Ideal for utilizing occasional windfalls or bonuses.	Involves paying the calculated sum to close the loan, obtaining no-dues certificate, and original paperwork.
Interest and EMI adjusted based on the updated loan balance.

What are the types of personal loan closures?

One of the most popular kinds of loans is a personal loan. The use of a personal loan has a number of advantages.

• There are no limitations on how to use the loan proceeds. 
• Quick approval, disbursement, and availability of money
• No need for collateral, little paperwork 

Customers have a wide range of options thanks to the personal loans offered by commercial banks, NBFCs, and digital lenders. Additionally, the increasing competition makes it possible for you to get personal loans at an interest rate that is reasonable for you. 

When you take out a personal loan, the borrowed amount is deposited into your bank account, just like with all other loans. Following that, you make monthly EMI payments to repay the loan (principal plus interest). 

Closing of Personal Loans on a regular basis

Closing of a personal loan on a regular basis occurs when all EMIs have been paid. The borrower must inform the lender to issue the No Objection Certificate for the preclosure of the due loan and then the certificate for the loan closure once the borrower is over with the payment of the final EMI.

Pre-closure of a personal loan

In essence, a personal pre-closure occurs when the borrower opts to pay off the amount of the personal loan before the predetermined term. The borrower often has two options: pre-closing their personal loan after a year or making a minimum payment of 12 EMIs. However, the payment of the current month’s EMI will be mandatory for the borrower, as any unpaid balances and the foreclosure fees when the loan is foreclosed.

Part-payment on a personal loan

A personal loan part payment is an option for a borrower who wants to shorten the length of the loan and the number of monthly payments. The financial lender’s terms and conditions will apply to the part payment amount.

What are the Advantages of Personal Loan Preclosure?

The majority of banks allow prepayment of the balance after a year. You will save a lot of money on interest if you decide to repay the loan in full. Here is an illustration of how you will profit:

Consider taking out a Rs. 3 lakh loan with a 5-year term and a 15% annual interest rate. After calculation, your equivalent monthly payment (EMI), assuming the processing cost is 2%, will total Rs. 7,137. By doing this, you will be paying Rs. 35,529 in interest by the end of the first year. You will avoid paying Rs. 57,049 in interest if you choose to pay the outstanding sum of Rs. 2,64,160 in full right away.

However, some banks could charge a fee for foreclosing on a loan. The cost, which is based on the amount still owing, often falls between 2% and 5%.

What are the Pre-Closure Charges of Personal Loans of Top Banks?

When borrowers decide to foreclose on a loan, the majority of lenders impose a foreclosure fee. The fees associated with foreclosure typically range from 2% to 6% of the remaining principal that must be paid at the time of foreclosure. The foreclosure fees at PaySense are 4% of the outstanding loan balance.

What are the Factors to Consider Before Personal Loan Preclosure?

One of the first steps you should take if you want to lessen your financial burden is to try to pay off any personal debts you might have. This is due to the fact that personal loans typically have higher interest rates than other kinds of loans. 

So you may drastically lessen the impact on your finances by shutting them off. Having said that, paying off your debt is not the only step in closing a personal loan. In actuality, it goes beyond that. While doing so, a few crucial factors must be taken into consideration. 

Here are some of the most crucial points you should bear in mind when closing a personal loan:   

• Preclosure Terms and Conditions
• Necessary documents that are required for the preclosure of the loan
• Closing fees for personal loans
• Certificate for the Closure of Loan
• The Score of Your Credit Performance

Conclusion 

As a result, there are many things to consider before paying off your personal loan early. Make sure you consider the advantages of foreclosure before taking any action and that you are qualified for a prepayment. Before signing the loan agreement, review the foreclosure conditions, and if you have any questions, contact your lender. Take the appropriate decision because foreclosing your loan could help you save or cost you money, depending on how far along the term you are.