Personal loans can be extremely useful in times of emergency. Flexible eligibility and easy availability have made personal loans a popular option among-st the borrowers. However, while applying for a personal loan, borrowers often overlook the hidden charges such as prepayment penalties, service charges, etc. levied by the financial institution. There are a lot of financial benefits of preclosing the personal loan. The sooner you prepay your loan, the more you save on overall interest payout. This can reduce the total cost of borrowing in the long run. Therefore, it is essential to understand the preclosure clauses of a personal loan before opting for it.
Below is a guide to the preclosure of a personal loan as well as the terms associated with the same.
What is preclosure of a personal loan?
- In case of pre-closure of a personal loan, the borrower repays the loan before the loan tenure ends. Financial institutions often levy a penalty for preclosing the loan. This is done in order to compensate for the interest amount lost. With leading NBFCs, it is possible to avail personal loans with minimum prepayment penalties. Therefore, it is recommended to check the prepayment charges before availing a personal loan.
- Preclosing a personal loan can be extremely helpful in lowering the interest rates and debt burden. Different financial institutions have different lock-in periods before which the borrower can close the loan.
Procedure for Pre-Closing Personal Loan:
Step 1: Visit the financial institution from where you have availed the personal loan. Request for a pre-closure form and fill all the details carefully.
Step 2: You would also need to submit a set of documents for pre-closing your loan. Some of the documents required are:
- ID proof such as Passport, Driving License, or Aadhar Card.
- Loan documents.
- Bank statement reflecting the payment and clearance of the last EMI.
- Pre-payment statement, which you can avail by requesting with the lender.
Step 3: Once you submit all the documents, you can make the payment of the remaining loan amount through cheque, demand draft, or cash. You would also have to pay the prepayment charges. Lenders usually charge a percentage of the principal amount as prepayment penalty.
Step 4: Once the entire amount is paid, the financial institution will provide you an acknowledgment letter which must be kept for future reference.
Step 5: The final closure of the loan agreement is sent to you in a few days after closure of the loan.
Before opting for foreclosure of your personal loan. You can also calculate the preclosure amount with the help of an online calculator.
Enter the following details and calculate the preclosure amount:
- Your loan amount
- Loan term
- Rate of interest
- The number of EMIs that you have already paid
- The month in which you would like to preclose your loan
Now that you are well aware of all the aspects of preclosing a personal loan, ensure that you make the most to reduce the overall cost of borrowing. It is always advisable to discuss the terms of pre-payment with the lender before opting for it.
