Personal Loan Foreclosure: The Complete Guide
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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

  • Bajaj Finserv’s Flexi Personal Loans have nil foreclosure charges

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.

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.

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

  • - What are the charges for foreclosing? If your lender does allow a foreclosure, chances are it will levy foreclosure charges, that usually range from 3–6% of the principal amount that is yet to be paid

  • - Bajaj Finserv’s Flexi Personal Loan offers up to Rs.25 lakh at nil foreclosure charges. This unique facility gives you the flexibility to borrow as you need and repay as per your convenience. It helps you lower your EMIs by up to 45% as here you pay interest only on the sum used by you and not on the entire loan amount. Furthermore, you can also choose to pay the principal at the end of the tenor and pay only interest as your EMIs.

  • - When can you pre-close your account? Normally, a personal loan account has a lock-in period of 1 year, before which you can’t foreclose a loan


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.

  • - The RBI had recently passed a directive for lenders to waive off foreclosure charges, but the clause remains subject to loans originally availed at a floating rate of interest. However, certain lenders (cutting across sectors) do not charge a penalty on foreclosure. This comes as a relief to borrowers who can then use the cash to pay off the rest of the loan amount.

  • - 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.


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