Foreclosing your loan may negatively affect your CIBIL score. To know more about loan foreclosures and their impact on your credit score, read ahead.
Before learning the answer to ‘does foreclosure of personal loan affect CIBIL score’, let us understand the meaning of foreclosure.
Foreclosure, also known as pre-closure, refers to the act of paying off the total loan through a lump sum payment before the end of the tenure.
You may choose to foreclose a loan for many reasons. You might want to compete the loan payment early or may have calculated that you will save on some interest if you pre-close it.
It is always important to calculate the interest amount, in comparison to the foreclosure charges before you decide to foreclose a personal loan.
So, does foreclosure of personal loans affect CIBIL score? Yes, they do, to some extent. But they also come with some benefits -
On the other hand, there are many disadvantages of pre-closing a loan -
The lock-in period refers to a duration within which you cannot close your loan. Post that period of time, you can pre-close your loan by paying the due amount in lump sum and the foreclosure charges.
No, loan settlement refers to the act of closing a loan account in which you have defaulted by paying a minimum amount. Whereas loan foreclosure is voluntary closure of a loan account by paying the remaining amount in full. Loan settlement affects your CIBIL score more negatively as compared to a loan foreclosure.
You cannot remove the details of a foreclosure from your credit report if you have voluntarily closed it. But, if it is a mistake on the bank or lender’s side, you can easily raise a dispute and get it rectified.
Yes, banks have certain foreclosure charges if you wish to pay off your loan before the end of the tenure, and it is compulsory to pay it.
Whether foreclosure is good or bad depends on your individual case. If there is a long tenure left, and you are saving on interest, it might be a good idea. But in most cases, it is best to repay the loan throughout the tenure, if it is not too long.
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