Is a personal loan foreclosure a viable option?
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A personal loan is a convenient financing option whenever you find yourself strapped for cash. Whether it is to pay medical bills, your child’s school fee, or taking care of an emergency, a personal loan can help. These days, it is also easy to apply for a personal loan online within just a few clicks. Hence, if you did seek a personal loan during a time, you needed some financial assistance but now are no longer in need of the funds, you may be considering foreclosing the loan. But is that a smart option? Let’s find out.
When you take a personal loan, it comes with a loan tenure. This is the time over which you need to repay the loan amount borrowed as well as interest on it. This amount is paid by way of Equated Monthly Instalments (EMIs) over the repayment tenure. You can use a personal loan EMI calculator to determine your EMIs before you click on the personal loan apply button.
When you opt for foreclosure, you are essentially pre-paying or closing the loan before the tenure is over by paying the entire outstanding amount in one go. For instance, if you took a personal loan for Rs 5 lakh with a repayment period of 24 months at an interest rate of 15%, your EMI would be Rs 24,243. At the end of the 16th month, your loan balance would be about Rs 1.83 lakh. Normally, you would continue repaying this amount through EMIs for the remaining 8 months. But because of an increase in income, you may decide to close it after the 16th month itself. This is what a personal loan foreclosure means. Loan Tenure
Yes, if you have the funds to foreclose your personal loan then it is a good option. That’s because you save on the cost of the loan, i.e., interest. If you have the money to prepay the loan, then it is a prudent decision as you can avoid paying the remaining interest on the loan and use that money instead for investments or other financial goals.
Some borrowers wonder if foreclosing their loan will impact their CIBIL score negatively. It will not. Foreclosing your loan is different from loan settlement. In the former, you are paying back the whole loan earlier than the due date. In the latter, you are striking a deal with the lender to pay less than your loan amount due to an inability to meet your EMI dues. Hence, in case of a personal loan foreclosure, your CIBIL score will not be impacted.
There is a charge known as foreclosure charges that is applicable when you want to prepay the loan. This is charged as a percentage of your outstanding loan amount. The percentage differs from lender to lender and your loan terms. It’s important to know what the foreclosure charges are before you foreclose your personal loan.
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