Essentials to understand about personal loan foreclosure

05 JUNE, 2020

A growing number of people today opt for a personal loan in times of financial distress. If you have taken a personal loan, you may want to make your way out of debt as soon as possible. Even experts suggest that it is best to ease your financial burden as soon as you are in the capacity to do so. Fortunately, you do not have to wait to complete your personal loan at the end of the tenure. The bank lets you avail of the option of a loan foreclosure.

As the name suggests, a personal loan foreclosure is a process of paying your loan amount in full. It is made in a single payment with the clearance ahead of the due date. Typically, there is a lock-in period of your loan account. Only on completion of this lock-in can you pay the balance and settle your account.

Read on to know important factors related to personal loan foreclosure:

• Loan foreclosure by the bank – In the case that the borrower no longer holds the capacity to repay the loan, the bank is left with no choice but to foreclose the loan. This is the last resort that is taken by the bank when the borrower continues to default with personal loan EMI payments. The foreclosure allows the bank to recover the outstanding loan amount.
  
  
• Loan foreclosure by the borrower – As a borrower, you may decide to foreclose your personal loan account in order to be debt-free. An increase in income or higher disposal of funds can push you to consider foreclosing your loan. However, it is important to thoroughly check the related aspects with the step before going ahead. The terms and conditions on a foreclosure may not always be favorable. You must importantly consider the related-charges before you undertake the same. When foreclosing the loan, you will have to provide the bank with your identity proof, details of your loan account, and the pay cheque for clearing the payment.

Charges levied on a loan foreclosure

There are charges that you will incur when foreclosing your personal loan. Typically, the fees range anywhere from 3% to 7% of the principal amount that is yet to be fulfilled. For this reason, you must understand clearly whether the foreclosure brings value to you. Do the math and evaluate to ensure that the charges do not further dent your finances. If you do feel that paying off the loan is better despite the incurred charges, a foreclosure is indeed a great option.

Additional Read: Understanding the common fees and charges related to Personal Loan