Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs

SUPPORT

Menu  
 
Apply Now
Apply Now

Tata Capital > Blog > Personal Use Loan > What Are Personal Loan Foreclosure Charges?

Personal Use Loan

What Are Personal Loan Foreclosure Charges?

What Are Personal Loan Foreclosure Charges?

Personal loan foreclosure charges are the fees borrowers need to pay if they choose to repay the loan before the loan tenure ends. Borrowers can choose to foreclose a loan to reduce the overall interest amount and to become debt-free sooner. Lenders impose these foreclosure charges in the form of a percentage of the outstanding loan amount to compensate for the loss of expected interest income. 

If you wish to pay your loan off before its maturity, it is imperative to understand how foreclosure charges to assess whether the savings outweigh the costs.

When Can You Foreclose a Personal Loan?

Borrowers can foreclose a personal loan only after completing a minimum number of EMI payments, as specified by the lender. Typically, lenders have a lock-in period of 12 months from the date of disbursement. This restriction is in place to protect the lender’s interests and to ensure it earns at least a basic interest amount before early closure. 

If you are eligible, you can repay the entire outstanding loan amount in one go. However, it’s important to check with your lender for any foreclosure terms, pre-closure charges for personal loan, and the required lock-in period before initiating the process.

Benefits of Foreclosing a Personal Loan

Foreclosing a personal loan can come with some benefits, such as:

1. Savings on Interest Cost

By foreclosing a personal loan, borrowers can significantly save on the total interest outgo by repaying the outstanding amount early. This can be particularly useful for high-interest loans.

2. Eliminates EMI Burden

Paying off the loan early can reduce monthly financial pressure by eliminating EMIs. It also allows borrowers to become debt-free sooner, offering greater financial freedom. 

3. Improved Credit Score

Foreclosing a loan successfully indicates responsible financial behaviour, potentially leading to an improvement in the borrower’s credit score. This can also make it easier to apply and secure a loan in the future.

4. Improved Cash Flow

Without the stress of monthly EMIs, your financial liquidity and cash flow improve, so you focus on saving and investing for your future. 

How Are Foreclosure Charges Calculated?

To determine personal loan foreclosure charges, here’s a simple formula you can use:

Foreclosure Charges = Outstanding Loan Amount * Percentage Foreclosure Charges * Remaining Tenure (months) / 12

For instance, you have an outstanding personal loan that amounts to Rs. 1,00,000, and the foreclosure charges are 4%, with 10 months remaining as the tenure. To calculate the total foreclosure charges (FC):

FC = 1,00,000 * 4% * (10/12)

FC = 1,00,000 * 0.04 * 0.8333

FC = Rs. 8,000

Thus, foreclosure charges in this case amount to Rs. 3,333.

Things to Consider Before Foreclosing a Personal Loan

Consider these factors before you pay the foreclosure charges on your personal loan:

1. Impact on Credit Score

While foreclosing your loan demonstrates financial responsibility, it may not improve your credit score by a significant margin.

2. Lock-in Period

Most lenders impose a lock-in period of 12 months from the date of disbursement. Read all documents and policies before foreclosing to avoid additional charges.

3. Asses Interest Savings 

Before foreclosing your personal loan, do a comparison of the interest amount you will save with the costs associated with foreclosure charges on your personal loan.

4. Foreclosure Charges

Different lenders have different foreclosure charges, usually a percentage of the outstanding amount. Make sure you understand these charges thoroughly before paying off your loan. 

Key Details About Tata Capital’s Personal Loan

Tata Capital offers easy personal loans designed to meet a range of borrower needs, such as higher education, medical emergencies, home renovation, etc. Leveraging the Tata Group’s 150-year legacy and strong brand trust, Tata Capital delivers reliable, customer-centric lending solutions. 

Designed to meet diverse financial needs, this multi-purpose loan combines competitive pricing, flexible repayment options, and a transparent fee structure.

  • High Loan Amounts: Get a loan of up to Rs. 35 lakhs.
  • Competitive Interest Rates: Starting at just 11.50% p.a., Tata Capital’s rates are among the most competitive in the industry.
  • Flexible Tenures: Choose repayment tenures of up to 6 years and manage EMIs comfortably.

Getting a personal loan through Tata Capital is a quick, reliable, and straightforward process. 

You can learn more on the official Tata Capital Personal Loan page.

Conclusion

Foreclosing a personal loan can be a wise financial decision for borrowers looking to save on interest and become debt-free ahead of schedule. However, foreclosure charges may vary depending on the lender and tenure completed. Do make sure you look into every critical detail, including the lock-in period, documentation, and associated foreclosure charges to make the right decision. 

Get an Instant Personal Loan for all your needs !

Apply now
Popular Searches
Term Loan Personal Loan for Government Employee Personal Loan for Salaried What is Personal Loan Personal Loan Prepayment Personal Loan Application Process 3 Lakh Personal Loan 4 Lakh Personal Loan 6 Lakh Personal Loan 7 Lakh Personal Loan 8 Lakh Personal Loan 9 Lakh Personal Loan
More About Loans
Instant Personal Loan personal loan emi calculator personal loan interest rate personal loan eligibility Marriage Loan Document Required for Personal Loan Home Renovation Loan Medical Loan Personal Loan Balance Transfer 5 Lakh Personal Loan Small Personal Loan Travel Loan Personal Loan for Women 2 Lakh Personal Loan 10 Lakh Personal Loan

FAQs

Is it good to foreclose personal loans?

Foreclosing a personal loan is a financially wise decision if you want to become debt-free. By paying the outstanding amount altogether, you save on paying monthly interest. However, you should also take note of any related charges and lender policies.

Does foreclosure reduce interest?

Yes, foreclosing on a personal loan helps reduce the total amount of interest to be paid over the loan tenure. This happens as the interest stops accumulating when the loan is repaid early. However, determine the total interest savings vs foreclosure costs beforehand.

Can foreclosure affect your CIBIL Score?

Yes, foreclosing your loan can positively impact your CIBIL Score. When you foreclose a loan, it shows financial stability and reduces your overall credit liability. However, your credit score may not see a drastic improvement. 

What is the best way to close a personal loan?

The best way to close a personal loan is to wait for the lock-in period to end. By doing this, you avoid paying any additional charges and penalties by complying with the lender’s policies.

How can I avoid foreclosure charges on a personal loan?

To avoid paying foreclosure fees on your personal loan, you need to opt for loans with no-penalty foreclosure terms. Check if your lender permits part payments without any additional charges. For personalised assistance or further queries on foreclosure charges, contact your lender.
Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Private Equity Funds

Useful Links and Resources

Policies, Codes & Other Documents

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download