Is it a good idea to foreclose your personal loan?

Foreclosing a personal loan at the right time can help you manage your income and expenses effectively.
Is it a good idea to foreclose your personal loan?
5 min read
08 Dec 2022

The procedure of paying off the entire outstanding loan before the due date is known as foreclosure of loan. A personal loan account often includes a one-year lock-in term after which you can choose to prepay the remaining debt and settle the loan amount.

Let’s say you have taken a loan of Rs. 3 lakh for a tenure of 3 years. At the end of the second year, you receive a huge bonus that should allow you to foreclose the loan. In such a case, is it wise to go ahead with the foreclosure or retain the bonus as a liquid fund?

The answer to this is slightly multi-layered and subjective, but as a rule of thumb it is advisable to only foreclose your personal loan when you have some funds to cover any unexpected financial emergencies.

Additionally, whether foreclosing a loan is logical or not, also depends on the EMIs already paid and the tenure remaining. Financial institutions tend to recover a fair percentage of interest during the initial tenure, leaving a chunk of the principal to be recovered towards the latter part of the tenure. Keeping that in mind, it would make more sense to foreclose the loan during the initial part of the tenure.

Read on to know the advantages of foreclosing the personal loan

● Save your interest payable

Foreclosing your personal loan in the initial tenure can help you save your overall interest payable. For example, you have taken a personal loan of Rs. 3 lakh at an interest rate of 15% for the tenure of 5 years, your EMI for the loan is Rs. 7,137 with a total interest payable of Rs. 1,28,219. And if you foreclose your loan after one year, you can save the total interest of up to Rs. 86,132.

● Reduce in debt-burden

Foreclosure of a loan can help to reduce your EMI burden and allow you better financial flexibility sooner.

Here are the few disadvantages of foreclosing the personal loan

● Foreclosure charges

If you have additional funds, you can foreclose your loan, but you will be liable to pay foreclosure charges and other fees.

Additional read: What is personal loan NOC?

● Impact on liquidity

Foreclosure of a loan can affect your capacity to deal with personal emergencies including – medical expenses, job loss, higher education, etc.

We at Bajaj Finserv offer personal loans with Flexi facility. These variants of the personal loan, give customers the flexibility of borrowing from a pre-sanctioned limit as per requirement and prepaying when convenient. In fact, our Flexi Term and Flexi Hybrid loans also extend the benefit of prepayment without any additional charges.

Follow these simple steps to foreclose your personal loan through My Account

  1. You simply need to sign in to ‘My Account’ and select your loan.
  2. Select ‘Foreclosure’ from the payment options available.
  3. Enter the required details and review the applicable foreclosure charges.
  4. Once the required details are entered, proceed with the payment to foreclose your loan.

Read on to understand personal loan fees and charges.


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