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Personal Loan Foreclosure: The Complete Guide

  • Highlights

  • Foreclosure is repaying the balance loan amount in one-go

  • Lender can foreclose the loan in case of continuous default

  • Prepay your EMIs as early as possible to save on interest

Foreclosure or pre-closure is the process of repaying in full, the outstanding personal loan in one single installment, ahead of the due date. A personal loan account (depending on the lender you avail it from), usually has a 1-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.

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Personal Loan Foreclosure

A 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 does become necessary when the borrower no longer remains financially capable to repay 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.

Additional Read : What is Repo Rate and How Does Repo Rate Impact On Personal Loan?

When the Borrower Forecloses the Loan

The reason why borrowers decide on foreclosing their loan account is the need to be debt-free. However, closing the account in haste, without checking with the lender on foreclosure terms and conditions, 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

Additional Read : 4 Top Factors That Led to the Growth of NBFCs in India

What are the charges for foreclosing?

If your lender does allow a foreclosure, 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 make a decision of foreclosing 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, so as to avoid foregoing 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

Know your pre-approved offer on personal loan, home and business loans from Bajaj Finserv by providing your basic details. These offers ease the application and availing of a loan.

The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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