Guide To Personal Loan Foreclosure

When you avail a loan, it is usually repaid in the form of EMIs. After paying a few EMIs, you  decide to repay the balance loan amount in full, before the completion of the loan tenure. This process of single repayment of the the balance is known as personal loan foreclosure. 

 Let’s assume that you have taken a small cash loan of Rs. 150,000 from Finnable for 1 year at 17% personal loan interest rate. In this case, you will be paying Rs. 13681 as your monthly EMI to your lender.

Now, after 6 months, you receive a bonus from your company. While you have multiple options as to how to spend the money, you decide to settle or close your loan earlier than its expected tenure of one year. Here you have foreclosed your personal loan before your loan duration ends. 

If you are thinking of foreclosing a loan, here is a guide that can help you with the process:

  • Know the types of closure 

There are two types of loan closure:

  1. Regular closure: When you close your loan as per the repayment plan throughout the selected duration, you have chosen regular closure. 
  2. Foreclosure: When you choose to end your loan in full before the completion of the duration of the loan, you have chosen to pre-close the loan. 
  • Who can close the loan 

Personal loan foreclosure can be carried out by the borrower and the lender, depending on the circumstances:  

  1. Foreclosure by the borrower: If you, as a borrower, have a windfall and feel the need to reduce the financial burden, you can foreclose the loan.
  2. Foreclosure by the lender: This situation arises when the borrower fails to make multiple EMI payments or has stopped paying the EMIs completely. In such a case, the lender will take necessary steps, including the hiring of loan recovery agents to recover the outstanding amount. 
  • Advantages of foreclosure to the borrower 

There are multiple benefits of foreclosing an instant loan. These include:

  1. Saving on interest: When you foreclose a loan, you will be saving on the rate of interest that is applicable on the loan. To know how much this amount comes up to, you can use a personal loan foreclosure calculator.
  2. Impact on credit score: Foreclosing a personal loan will have a positive impact on your credit score.
  3. Reduction of debt: Loans are debts. Foreclosing your loan means you will be debt-free. It not only reduces the financial pressure but also helps you live life stress-free.
  • Disadvantages of foreclosing a personal loan

There are also disadvantages to personal loan foreclosure. These include:

  1. Lumpsum payment: Instant personal loan foreclosure means you will end your loan in full. It implies that you will be paying a lump sum to your lender. Before you choose to take this step, it is necessary to check your finances.
  2. Foreclosure payment charges: The lender will charge you a certain amount as foreclosure charges.

What are the charges for Foreclosure of Personal Loan

Before you start paying your debt in full, check with your lender as to how much personal loan foreclosure charges you will need to pay. These charges vary from lender to lender.

At Finnable, the foreclosure charges are levied on the pending principal amount and depends on the tenure of the loan.

After

6 month – 4.5%

6 – 12 months – 4%

12 – 24 months – 3.5%

24 – 36 months – 3%

Not all lenders have charges for prepayment. You can close a personal loan with no foreclosure charges with certain institutions.

What Are The Documents Required For Personal Loan Foreclosure

You will need the following documents to foreclose the loan:

  • Identity Proof: Your PAN card or Aadhar card will suffice as proof of identity
  • Loan No: You will be assigned a loan number when the loan is disbursed
  • Bank Statement: Proof that the last EMI was paid on time 

Conclusion

Foreclosing a personal loan is a good idea if you want to clear your debt. Before you do so, understand the pros and cons of foreclosing the loan. Also, calculate the foreclosure charges on the personal loan before making a decision. A personal loan is only a liability if you think of it as one. It can be the financial aid you need in a time of crisis. 

You can apply for small cash loans with your Aadhar card through Finnable’s online personal loan app. The process is seamless and quick. Moreover, you can apply for personal loans for salaried with minimal documentation.

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