Personal Loan Foreclosure – All You Must Know.

During your loan tenure, you might decide to repay your loan in totality in a single shot. Doing so can free you from debt and even ameliorate your score. However, to foreclose your credit, a few lenders need you to pay a part of the amount in the form of foreclosure fees. There are a few lenders who do not levy any pre-closure fees on fixed rates. So, you can avail a 10-lakh personal loan or a personal loan of any amount of up to Rs 40 lakh with zero foreclosure fees. The best banks for personal loan with suitable terms and conditions are mostly all the public sector banks, private sector banks and a few digital lenders. However, in the case of a floating-interest-rate personal loan, no foreclosure fees are charged. A few lenders need you to make payment of a portion of funds in the form of foreclosure fees.

There are a few lenders who do not levy any pre-closure fees. So, you can avail a personal loan with zero foreclosure fees. It is prudent for you to check out your lender or review the loan agreement to get an idea of the personal loan foreclosure fees. Foreclosure fees of personal loans even called prepayment fees are charges that a few lenders might levy if you repay the loan by the end of the tenure. As mentioned above, such fees are applicable just on the fixed rate. Such fees are designed for compensating the lender for the interest they may have earned if they had followed a systematic repayment schedule.

Such fees vary based on the lender and the conditions of your credit agreement. Generally, foreclosure fees of the personal loan range anywhere between 3 per cent and 6 per cent of the outstanding loan proceeds. Also, you can check out the latest RBI (Reserve Bank of India) guidelines on foreclosure fees on personal loans. For now, RBI (Reserve Bank of India) has mandated foreclosure fees are not applicable on the floating rate personal loan.

What’s the personal loan foreclosure procedure?

If you are considering foreclosing your personal loan quickly, ensure to follow the below steps –

• Check out your loan terms and conditions to view any applicable personal loan foreclosure fees.
• Next, discuss with your lender regarding foreclosing the loan and filling out a foreclosure form if necessary.
• Submit the necessary documents like the original loan agreement and income and ID proof.
• Next, you must pay your loan in totality along with the penalties. Ensure you get the loan closure certificate from the lender to finish your process.

What are the advantages of closing your personal loan quickly?

Despite any foreclosure fees, if applicable, there are distinct benefits of closing your loan early. Mentioned here are some benefits you must consider –

• Save on the interest constituent 

By repaying your loan quickly, you can simply save funds on the interest constituent that you otherwise would pay during an original repayment tenure. This can be advantageous if your loan has a higher term or a high rate of interest.

• Ameliorate your credit profile and score 

Foreclosing your loan early can even assist ameliorate your score by lowering your thorough debt and ameliorating your DTI (debt to income) ratio. Doing so can help you qualify for future credit cards or loans.

• Lower the financial burden 

In case you are struggling to make monthly loan repayments or other EMI repayments, paying a personal loan early can reduce the financial stress on your shoulder.

What are the distinct kinds of foreclosure options for personal loans?

Loan foreclosure by the bank – 

Loan foreclosures often are not just initiated by loan borrowers. In the case a loan seeker defaults on personal loan EMI repayments continuously for a time period or has stopped making monthly repayments owing to financial incapability – then as a final resort, the bank would require foreclosing the loan.

In such a scenario, the bank would take the required measures to auction the loan seeker’s security or collateral to raise the fund that equals the outstanding loan proceeds. Having raised an equal amount, the bank would then move on to foreclosing the bank account.

Loan foreclosure by the borrower –

As a loan borrower, if you hold higher fund disposal and you want to ease your monetary burden – then you may decide to foreclose the loan by repaying the loan proceeds in full. Before taking this measure, you would even require taking into consideration the fees that are included in the procedure and even ensuring you have understood clearly the terms involved in foreclosing the loan account.

To foreclose the loan properly, you must provide documents like identity proof and various other information as required by the bank.

What are the steps you must follow for foreclosing your personal loan?

In most scenarios, as a loan seeker, you are not permitted to foreclose the personal loan for a span of twelve months. In a few instances, banks might even request for giving a 30-day foreclosure intimation. The foreclosure procedure might differ from one financial institution to another. However, here are some crucial elementary steps you must take –

Step no. 1 – Locate a nearby branch 

As personal loan foreclosure cannot be performed online, to request foreclosure – you will require visiting your local branch or a bank from where you have availed a loan.

Step no. 2 – Submit a foreclosure application 

The next measure is to inform the financial institution in writing regarding your decision of repaying the outstanding loan proceeds. Ensure in the application, you mention the loan account number.

Step no. 3 – Provide all required documents 

Next, you would require submitting all the required documents as per the bank’s request. A few of the commonly asked documents are –

• Identity proof like an Aadhaar card, PAN card, passport, or driving license
• Bank statements with proof of previous EMI repayment as well as clearance

Step no. 4 – Bank’s intimation

Once all the documents are submitted, financial institutions or banks will then authenticate the documents. After this, they would then proceed for computing the pending proceeds that required being paid by you post considering loan EMIs and interest that are paid to date. Besides this, taxes as well as applicable foreclosure fees would even be taken into consideration. A lender would then send you a statement of foreclosure and mention the amount and date to repay the proceeds outstanding.

Step no. 5 – Personal loan repayment

Next, you must make full repayment of the outstanding pending amount alongside other fees as per the lender. The outstanding proceeds would require being paid at least 7 days before the next personal loan EMI. Personal loan foreclosure payment can be performed through demand draft, cheque, cash, or online transfer.

Step no. 6 – Processing the foreclosure of personal loan

Once the loan payment is received and outstanding dues are cleared, the financial institution or bank would then go ahead with the formalities of personal loan foreclosure. Alongside stopping routine reminders as well as instructions around loan EMIs, the lender would even return all original documents to you and provide you with the below documents –

• Closure certificate of personal loan
• No objection certificate (NOC) for foreclosure of personal loan
• No dues certificate
• Payment receipt and acknowledgement letter