Personal Loan Pre-closure: What do you need to know?

Are you considering opting for a personal loan pre-closure? Repaying your loan before the tenure ends is a great and popular way to save on the interest. However, it is a decision you must make after careful consideration to ensure you get the maximum benefits. This is because you may have to pay penalties and make a lump sum payment. 

Read on to learn more about the benefits of pre-closing a personal loan, its meaning and more.  

What is a Pre-closure?

The term pre-closure refers to an instance when you pay your loan amount and interest in full before the tenure ends. It is also called a foreclosure, as lenders close your account before the repayment period ends. 

In other words, rather than repaying your loan through Equated Monthly Instalments (EMI), you can make one payment to settle all your debt. This option enables you to become debt-free and save on the interest you would otherwise pay until the tenure ends. 

Is it Good to Close a Personal Loan Early?

While personal loan pre-closure enables you to save more on your payable interest, some lenders may charge foreclosure penalties. These charges vary across lenders but usually are a percentage of the outstanding loan amount. 

Regardless, you may have to pay a certain amount for the interest you will save. If the cost is more than the savings, the decision may not be appropriate. Additionally, you should ensure that making a lumpsum payment doesn’t lead to financial strain. 

Therefore, before asking your loan provider, ‘Can we close the personal loan early?’ you must check their charges and do all these calculations. If you have sufficient funds to pay the outstanding amount and are saving more, then foreclosure is a good option. 

Also Read: Foreclosure Charges for a Personal Loan

Pros of Pre-closure 

Here are some benefits of opting for personal loan pre-closure:

• It improves your debt-to-income ratio, which allows you to get better credit
• It saves you from paying high interest for a long-term
• It is a good use for your savings and additional funds
• You can opt for this option anytime based on your fund availability
• Your credit score may increase temporarily, which will improve your chances of getting a better loan offer
• You can avoid the risk of forgetting the EMI payment and damaging your credit score

Things to Consider Before and After Pre-closure

If you are wondering, ‘Is it good to close a personal loan early?’ you must consider the following factors. 

• You must check if your lender allows you to close your loan before the tenure
• Know the associated charges to understand the cost you will have to pay
• Some lenders may also charge pre-closure penalties as the difference between the current and previous interest rates  
• Make sure that your pre-closure amount will not burden your finances
• You must obtain a No Objection Certificate (NOC) to indicate that you have no dues remaining 
• In case you pay with a ‘Pay later’ instrument like a cheque, ensure that you have calculated the amount correctly and maintain the amount in your account
• Avoid liquidating any assets to close your loan before the date
• If you have limited funds, then go for a prepayment option to pay in EMI in advance instead of foreclosure

Deciding to go for a personal loan pre-closure can benefit in several ways. Additionally, while some lenders still levy a prepayment penalty, there are several that impose no charges when you pay off your loan before the tenure. The Fibe Instant Cash Loan is one of these options. 

With Fibe, you can easily avail of a ₹5 lakhs loan at an affordable interest rate, as well as a flexible tenure option to streamline your repayment. Download the Personal Loan App or go to our website to apply now! 

FAQs on Pre-Closing a Personal Loan

Does early closure of the loan affect CIBIL score?

No, prepayment and foreclosure do not have a significant impact on your CIBIL score. However, your score may temporarily change when the lender closes your personal loan account. 

Can I pay all EMI at once?

Yes, some lenders allow you to pay all EMI at once, also called a foreclosure. But they may charge a fee, which you must take into consideration. 

Can I close a personal loan in 1 year?

Sometimes, you may have to pay a fixed number of EMI before opting for a foreclosure. So, you can get a personal loan pre-closure after paying 12 EMIs if your lender allows it.