Is pre-closure of a personal loan a good choice?

Learn about personal loan pre-closure and the pre closure charges to decide if settling your loan early is the right financial choice.
Is pre-closure of a personal loan a good choice?
5 min read
20-08-2025

A personal loan helps meet urgent financial needs like home renovation, \, education, or medical expenses without risking assets. Understanding preclosure of personal loan and pre closure charges for personal loan helps you repay early and manage finances effectively.

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?

A personal loan provides quick access to funds for various financial needs, from emergencies to planned expenses. Sometimes, borrowers with extra funds may choose to repay their loan before the scheduled tenure. This is known as pre-closure of loan or personal loan pre closure.

During pre-closure, instead of paying monthly EMIs, the outstanding loan amount is settled in a single lump sum. While this can reduce interest payments and help manage finances better, lenders may apply loan preclosure charges, so it’s important to review the terms and conditions before proceeding.

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 calculator, 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.

Benefits of Personal Loan Pre-Closure

Preclosing your personal loan can offer several advantages. It helps reduce the total interest paid over the loan tenure, frees up your finances sooner, and improves your credit profile by showing timely repayment. Understanding these benefits can help you plan an early closure of personal loan effectively.

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 Term 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?

Opting for the early closure of personal loan does not negatively impact your CIBIL score. Prepayments or full settlement of the loan, even with personal loan pre closure charges, will be recorded as “closed” on your credit report, reflecting positively on your credit history.

Frequently asked questions

Can I pre-close a personal loan if I have a personal loan overdraft facility?

Yes, you can pre-close a personal loan even if you have a personal loan overdraft facility. However, pre-closure terms, including fees, may vary depending on the lender’s policies.

Is it good to preclose a Personal Loan?

Preclosing a personal loan can save on interest payments and free up finances. However, consider any charges or penalties before opting for early repayment.

What is the penalty for preclosure of a Personal Loan?

A small fee may be levied as a penalty for preclosure of a personal loan, depending on the lender’s terms, while allowing full early repayment of the outstanding balance.

What are foreclosure charges on a personal loan?

Foreclosure charges on personal loan are nominal fees applied when you opt for foreclosure of personal loan, allowing you to repay the outstanding amount before the scheduled tenure.

Are there any charges for closing the loan early?

It may involve small fees, depending on the lender’s policy, to settle the outstanding balance before the loan tenure ends.

What is the difference between preclosure and foreclosure?

Preclosure vs foreclosure differ mainly in terminology; both refer to paying off a loan early, but preclosure usually applies to EMIs before the tenure, while foreclosure is full repayment.

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