Learn About Personal Loan Closure - Personal Loan Blog - Tata Capital

Pre Closure Of Personal Loan - Things To Consider

Feb 28, 2017

Personal loans have been a blessing for those who have had to face the situation of being temporarily out of cash. Weddings, health treatments, emergency repair of house, etc. can all lead to temporary cash crunch which cannot be dealt easily. It is at this point that people resort to taking personal loans and rightly so. However, once you have surplus money, then it makes sense for Tata Capital personal loan closure and be done with it.

But before you do that, there are a few factors that you should consider.

Personal Loan Prepayment Charges

Many lenders charge a loan prepayment penalty when you approach them to close your personal loan. Though RBI has generally been against such pre-closure penalties, lenders can charge the same under some other heads. So be ready to pay this additional charge. Before you apply for pre-closure, get in touch with your lender and ask about it. Some lenders may be ready to negotiate on it and this can work in your favor.

Loan Stage

Then comes the important factor of the stage in which you personal loan is. Most loans start charging the interest first and the principal amount later. So if you have taken a personal loan of tenure 3 years and you can pay the entire sum back after just 6 months, then you can save a lot in terms of the interest. The idea is that when you prepay the entire amount early in the loan tenure, you can forego less interest. However, if you are nearing the end of the loan tenure, preclosing the loan might not make much financial sense. It is because you would have already paid for most of the interest. The remainder principal would be in any case have to be repaid with time.

But nevertheless, clearing off loans gives a psychological boost that cannot be captured by mathematics. So if you have some excess cash and can comfortably close the loan, then you might as well do it.

All in all, there can be mathematical aspects of deciding whether to clear off the personal loan or not. But at the end of the day, it is an individual's choice as to what matters to him/her the most. Is it only about saving money on interest or it's about peace of mind.