So, you’ve taken a personal loan to meet an urgent financial need. Now, you don’t want a debt obligation and are thinking of pre-closing your loan. Is this a good idea in 2022? What does this mean for you in terms of penalties? How easy is it to pre-close your loan in 2022?
In this article, we answer all your questions!
What is a Pre-closure?
A pre-closure or foreclosure is the complete repayment of your loan in a single instalment prior to the due date. Thus, instead of continuing to pay regular EMIs, you pay the pending amount in one go.
This helps you save a significant amount on the interest component and EMIs you would have paid over time. Now, before deciding to pre-close your loan, you will need your lender’s approval. In some cases, lenders charge a foreclosure penalty to compensate for the lost interest component they would have otherwise earned.
Additional Read:- Why a Personal Loan is Known as a Loan for Emergency Needs
Things To Know About Pre-Closing Personal Loan
Like all financial decisions, you should weigh the pros and cons of pre-payment of your loan. We have addressed below some basic questions you might have while making this decision.
How Will It Affect Your Credit Score?
Pre-payment of the complete loan amount is considered as payment done within the due date. It has no bearing on your credit score as such. A ‘closed’ status is reflected on your credit report when the loan is repaid in full.
Are There Any Charges on Pre-closure?
Yes, pre-closure comes with a price. So it is important to do a cost-benefit analysis before you make a decision.
At Tata Capital, we levy a foreclosure charge of 4.5% of the principal outstanding amount. We levy this fee on the partial or complete pre-payment of a loan, including top-ups.
Is There a Right Time to Pay Off Debt?
If you have excess funds, it can be a good idea to close your loans unless you’re almost at the end of your personal loan tenure.
If you pre-close your loan towards the end of its tenure, you will not be able to enjoy much savings. In addition, you will also have to a foreclosure fee. Do a proper analysis of your costs and benefits before deciding.
Additional Read:- Here are Some Myths About Personal Loan Which You Should Ignore
Choosing to pre-close your loan in 2022 may or may not be a good idea, depending on your stage of loan repayment and other factors. To sum it up, assess your financial situation, consider the interest amount you will be saving, and the pre-closure charges you will have to pay.
If you’re looking for competitive personal loan interest rates and flexible financing options in 2022, choose Tata Capital. Starting at just 10.99%, our interest rates are one of the most competitive in the industry. With loan amounts ranging from Rs. 75,000 to Rs. 35 lakhs, we help you meet all your needs through our affordable financing options.
To understand your monthly EMIs, use our free online personal loan EMI calculator today.