Things to know about Pre-closure charges 

Things to know about Pre-closure charges 

Personal loans are the most effective solution to reduce your financial load. Most consumers choose a personal loan because it requires no collateral and can meet their immediate financial needs. Personal loans can be used for a variety of purposes, including home purchases, Business upgrades, and medical emergencies. 

Personal loans help people with a variety of financial purposes. Because they are unsecured loans, there is no collateral, which reduces the borrower’s burden significantly. However, in some situations, a pre-closure or foreclosure might be inconvenient and may call for paying a verification fee to the lender. It is important to understand certain things about pre-closure. 

What is pre-closure? 

There are certain financial situations in which a personal loan is the best is the simplest option to secure a loan and receive quick funds without requiring collateral.

However, borrowers with excess money may choose to close their loan as soon as possible, which is known as pre-closure or foreclosure. It refers to paying the loan’s total balance in one payment before the due date. 

Is it better to make advance payments on your Loan? 

Lending costs are always lower than consumer borrowing costs. For example, a consumer can obtain a loan with a 15% interest rate, but the annual savings will be no more than 9% or 10%. At the same time, the customer will be required to pay 15% interest on the pending loan amount. If the consumer chooses to prepay, the loan can be repaid fast, saving an additional 5% to 6% in interest per year. 

Types of Personal Loan Closure: 

Regular personal loan closure: 

A regular personal loan closure is nothing but repaying all your EMI for your loan amount. Following the payment of the final EMI, the borrower must notify the lender to issue the No Objection Certificate for the loan closure, followed by the loan closure certificate. 

Personal loan pre-closure: 

When the borrower decides to close, the loan amount in a single payment is called personal loan pre-closure. However, in most circumstances, the borrower can select this option after one year or payment of a minimum of 12 emails. Pre-closure charges for personal loans, the borrower must pay the current month’s EMI as well as any outstanding balances. 

Personal loan part-payment: 

If the borrower is having difficulty making monthly payments, they can reduce their monthly payback and loan tenure, known as personal part payment. The part-payment amount will be subject to the terms and circumstances established by the financial institution. 

Personal Loan Pre-payment charges of top financial lenders 

Financial lender Foreclosure fees 
HDFC Bank 2% – 4% 
Yes Bank 2% – 4% 
CitiBank 4% + GST 
Kotak Mahindra Bank 5% + Service Tax 

This table with references to data from BankBazaar

Benefits for pre-closure: 

Go debt-free faster: 

There are certain essential reasons to go for a personal loan. When it comes to repayment, it can be stressful and a default can have a bad impact on your credit score. If you have surplus funds, you should consider pre-closing your loan. 

Pre closure is done with a small prepayment charge. However, considering pre-closure for a personal loan amount can help you become debt-free before the loan term ends. 

Improve Your Credit Score: 

Repaying your loan amount can usually improve your credit score, but it is tough to maintain a good credit score by repaying your debt every month. Instead, reclosing your loan amount in a single transaction can help you become debt-free while also improving your credit. A strong score may make you qualified to apply for another loan. 

Prepayment means reduced interest outflow: 

The lock-in term is one of the most important factors to consider when prepaying a loan. This is the period during which the lender prohibits the borrower from making any full or partial prepayments on the loan. 

However, once the lock-in time is over and you have some additional income, you should consider prepaying your loan, either totally or partially. This will save you a significant amount of interest on your loan.

Don’t forget about the prepayment fee that comes with loan prepayments, which is still a good deal given the amount of loan interest you’ll save. 


What is the difference between pre closure and foreclosure charges? 

Pre-closure, often known as foreclosure, is the process of making a full prepayment before the loan term ends. 

Does pre-closure reduce interest? 

Pre-closure offers several advantages, including. Paying off your loan early can lower your total interest rate. 

Is it better to pre close a personal loan? 

If you have enough money to close, your loan, pre-closing can save you money on interest when the loan’s interest rate is high.

Can I get a loan after foreclosure? 

After the pre closure or foreclosure of your loan, it does not affect your credit score. Maintaining a decent credit score makes you eligible for a personal loan. 

What are the benefits of pre-payment? 

Prepayments might lower your interest rate because the unpaid interest balance is reduced. 

Hariharan Ravichandran

Understanding the ever-changing environment of money may be a difficult experience.I'm Hariharan, a seasoned finance explorer and blogger. I am right there with you, beginning on this journey of financial enlightenment as a fellow traveler.


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