A personal loan is the best way to finance your immediate needs without putting any of your assets at risk. You can use personal loan funds for any legitimate financial need. You can get our personal loan for a wide variety of reasons, including the purchase of a car, home renovation, financing your child’s education, the payment of unexpected medical expenses, or even the funding of your dream wedding.
Personal loans are fantastic since they have incredible flexibility in terms of their use, repayment schedule, and application process. You do not have to put up any collateral to secure a personal loan, which is a huge burden off the shoulders. But in some cases, the prepayment or foreclosure of the personal loan could become a hassle and may lead to paying off certain fees to the lender. Therefore, it is important to understand the terms and conditions of closing a personal loan in advance.
What is pre-closure of a personal loan?
Everyone has their own reasons for taking out a loan, but when unexpected events arise, many find that a personal loan is the best and the easiest option to avail of funds. Borrowers who have extra funds may often want to pay off their loan as quickly as possible, this is called pre-closure of the loan. The term "pre-closure" or "foreclosure" refers to paying off your entire loan balance in one lump sum before its due date.
In other words, rather than making monthly payments, the outstanding balance is paid all at once. However, there may some personal loan pre-closing charges, so it is advisable to review the terms and conditions.
Is personal loan pre-closure a good idea?
Your financial condition and your monthly expenses must be considered before deciding on closing a personal loan early. Foreclosing your loan can be done if you have the financial resources to pay it off early. It can save your interest payable, improve your credit score, and free up cash flow. But it is generally not advisable to spend all your savings on foreclosing your personal loan early because unexpected expenses may occur anytime, and in that case, you might need your savings to deal with those immediate needs.
Also, you might have to incur some personal loan foreclosure charges if you want to close your personal loan before the defined tenure. Foreclosure of a loan is the final step in the process, and it is only followed by a No Objection Certificate (NOC) and a loan closure letter.
When should you pre-close your personal loan?
You should consider pre-closing your personal loan when you have sufficient funds to pay it off without compromising your emergency savings or other financial goals. If the loan interest rate is high, pre-closing can save interest costs. However, check for prepayment penalties and assess your overall financial situation before doing so.
What are pre-closure charges on a personal loan?
Lenders will typically charge prepayment penalties on loans to make up for the interest they would have earned if you had paid the loan back throughout its defined duration.
But, if you want to avoid paying any foreclosure charges, you can always opt for our Flexi Hybrid Loan or Flexi Term Loan and avail the benefit of not paying any additional fees.
Pre-closing charges on Bajaj Finance Personal Loan are up to 4.72% (inclusive of applicable taxes) on the outstanding loan amount as on the date of full pre-payment.
Does pre-closure of a personal loan affect your credit score?
Prepayments or foreclosure do not impact the CIBIL Score for a personal loan. So, your credit score will not be affected in any way by this. Once you have paid off your loan in full, it will be marked as "closed" on your credit report.
