Is it a good idea to pre-close a personal loan? – Advisor Forbes INDIA

You found yourself in a life situation that required an immediate influx of money. You are budgeted and have a fixed income. What are you doing? You get a personal loan.

Whatever the need or the situation, whether it is specific objectives such as the purchase of a vehicle or real estate, a loan to pursue studies or an emergency loan health or even a holiday loan, whatever the situation, personal loans are available for all types. life situations.

Personal loans are excellent and offer incredible elasticity in usage, term and settlement. they don’t have the background to pledge any of your collateral before getting a loan. Of course, loan rules and conditions differ from lender to lender, and the online space has made obtaining loans a competitive space.

You can now qualify for loans within 24 to 36 hours, if you complete your application quickly and prove your creditworthiness. FinTechs are the best bet today when it comes to availing personal loans, as they can tailor programs to borrowers’ needs and requirements.

What you need to know before taking out your personal loan

Usually, personal loans are contracted for a short period; for a shorter period, say 60 months. When you do this whole process online, you can choose your loan, and most lenders are quite lenient with prepayment terms. If at any point you find yourself with excess money, then you can use the funds to pre-close or prepay the outstanding personal loan. Pre-closing your personal loan has key benefits.

What is a pre-closing?

Many people opt for loans in a variety of ways, and yet, when life throws them around, opting for a personal loan seems appropriate for those situations. Many borrowers prefer to repay their loans early. So, a pre-closure or foreclosure is just that; the complete repayment of your loan in one go before the deadline. That is, pay the pending amount all at once instead of paying monthly installments (EMI).

Pre-closings help you save a significant amount of interest and EMI that would have to be paid over the life of the loan.

However, prepayment comes with a small fee, so it’s always a good idea to read the terms and conditions carefully before deciding to close.

Is it a good idea to close your personal loans early?

As mentioned above, it may cost you a fee, but minimal. Also, terms and conditions vary from lender to lender and even online and offline loans have different terms and conditions.

Online personal loans and offline loans have slightly different procedures to follow. For online loans, the outstanding amount is reflected in your online account and an acknowledgment is obtained as soon as the dues are cleared. The NOC and a certificate of loan closure will be the final documents you need to ensure that your loan foreclosure process is complete.

But in the case of offline loans, you absolutely must carry all the documents required for the validation of your identity, such as government proofs of identity, your loan account number, bank statements showing your last authorized IME and a check or draft of the pending application. Amount of the loan.

The bank or financial institution may request additional documents that it deems useful to complete the procedure. Some financial institutions may even charge you a nominal fee for the seizure. It would make sense to check with the lender and clear up all your doubts to make sure you don’t owe the lender anything else.

Once all the necessary documents have been provided by the borrower and validated by the lender, the financial institution will issue a letter acknowledging the foreclosure, which one must obtain and keep for any future transactions or reference.

Also, a crucial thing to remember will be to retrieve all the original documents from the lender that were submitted when applying for the loan. After the whole process is completed, the bank will post or email a document indicating the completion of the loan.

Does Pre-Closing Affect Your Credit Score?

No. Pre-closing is essentially paying off your loan before the due date. It certainly doesn’t affect your credit score. Once you have repaid your loan in full, your credit file will show a “closed” status.

Do we have to pay for pre-closures?

It is always important to do a cost-benefit analysis before making a decision and to read your lender’s terms and conditions carefully.

It would be prudent to check with the lender to see if they have added or included prepayment penalties in the calculation of the foreclosure amount. Borrowers should be aware that as of August 2019, as per a directive from the Reserve Bank of India (RBI), banks and Non-Banking Financial Companies (NBFCs) must stop or waive foreclosure or prepayment penalties, for a period of floating interest rate. loans, for non-professional purposes.

Each financial institution will have different lock-up periods before which it is advisable to close the loan. The borrower may even be charged a pre-closing fee by the financial institution, which differs from institution to institution, and it is advisable to check upfront.

When is it a good time to pay off a debt?

If you find yourself with excess funds and still have time before you can repay your entire loan amount, it may be a good idea to pre-close.

Pre-close before you are near the end of your loan term. This will save you some money. Remember that the interest rate is highest at the start of a loan term, so there are more advantages to prepaying at the start of the loan term than later.

Before excluding, it may be a good idea to check whether you will lose any tax benefits that you may lose by doing so. Don’t forget to check that the tax refund you get on the home loan more or less matches the interest expense you’ll save by prepaying the loan.


Once the borrower has completed the foreclosure process, the lender will issue a credit report that reflects their financial status and stability. It is this credit score that lenders use to assess creditworthiness and determine loan terms and conditions.

After seizure, the lender will need to update the credit report to CIBIL where all credit records and statements are kept. This is a crucial step to ensure the process is complete.

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