Foreclosure or pre-closure is the process of repaying the full outstanding personal loan in one single instalment ahead of the due date. A personal loan account (depending on the lender you avail it from) usually has a one-year lock-in period, after which you have the option of prepaying the balance and settling the loan account. Read on to know how to foreclose a personal loan.
Personal loan foreclosure
Foreclosure of an account can be undertaken either by the lender or the borrower.
When the bank forecloses the loan
Though this is one of the last resorts for a lender, it becomes necessary when the borrower no longer remains financially capable of repaying the loan amount and starts defaulting on EMI. What the lender does is that it proceeds to auction the borrower’s collateral first, and then having raised the money equivalent to the outstanding amount, forecloses the loan account.
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When the Borrower Forecloses the Loan
The reason why borrowers decide on foreclosing their loan account is the need to be debt-free. However, without checking with the lender on foreclosure terms and conditions, closing the account in haste isn’t a wise decision. Here is a checklist that will hold you in good stead should you decide to foreclose the loan:
Does the lender allow foreclosure? Remember that not every lender will let you pre-close your account.
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What are the charges for foreclosing?
If your lender does allow a foreclosure, the chances are that you may have to pay a foreclosure charge, which usually ranges from 3% to 6% of the principal amount that is yet to be paid.
Bajaj Finserv offers an instant Personal Loan where you can borrow up to Rs. 25 lakh and foreclose the loan by paying a nominal foreclosure charge.
Read about the current personal loan fees and charges here.
Some facts on personal loan foreclosure:
Note the following facts before you decide to foreclose your loan:
- Since maximum lenders wouldn’t allow a foreclosure within the first year of loan disbursal; borrowers get a raw deal when they realize a major portion of the interest is all that has been paid through the 12 months while the principal is still at large. So, the trick here is to prepay the amount as early as possible into the tenor to avoid preceding savings on the interest component.
- Remember to carry your identity proof, loan account number and a cheque for prepaying the balance loan when you approach the lender for a foreclosure.
Additional Read: How to consolidate debt
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