Personal Loan Foreclosure & Repayment Procedure

Longer the repayment term, lower is the EMI amount, which helps reduce the financial burden on borrowers. However, this also results in the borrower having to pay a higher rate of interest overall.  

Therefore, certain borrowers opt to close the loan through a lump sum payment after a few EMIs, if they can afford to. This process is called foreclosure of a personal loan or loan foreclosure.

Money View Personal Loan Foreclosure

If you’ve taken a personal loan from Money View, you could foreclose or pay off the entire loan amount anytime without penalty, based on the tenure of your loan, subject to certain terms and conditions.

 The terms and conditions for foreclosure of personal loans at Money View are given below -

  • For personal loans with tenure of up to 6 months - Foreclosure not allowed.

  • For personal loans with tenure from 7-18 months - Foreclosure allowed only after making 6 EMI payments.

  • For personal loans with tenure more than 18 months - Foreclosure allowed only after making 12 EMI payments.

You will be able to foreclose your loan on the app itself once you are eligible for the same. The ‘Foreclose Loan’ section will be visible on the app if the tenure of your loan is more than 6 months and when you have paid the mandatory number of EMIs to foreclose the loan as mentioned above. There will be no pre-closure charges for personal loans.

 Also, please note that personal loan foreclosures are allowed only after the 8th of every month.

Loan Prepayment in a Nutshell

Loan foreclosure or complete prepayment (not to be confused with part-payment) is basically when you repay your loan before the tenure ends. 

This helps you get rid of the additional interest amount that you were supposed to pay throughout the loan period. In order to do so, you have to inform your lender or the bank.

You can also make part payments against your loan to reduce the principal outstanding. This will also bring down your EMI and loan tenure considerably. However, some banks don’t allow you to prepay. So, check with your lender to know whether you can partially pay off your personal loan. 

However, as a borrower, is it okay for you to clear your personal loan early by paying a lump sum? Let’s look into the pros and cons of loan foreclosure.

Loan Foreclosure: What May Work for You

Here are some of the benefits of loan foreclosure -

  • Reduces Financial Burden
    Once you clear the loan, there’s no need to worry about the EMI, the interest, or rather anything related to your loan. Even if you make part-payments, it will help you save more on the interest. 

The longer the loan tenure is, the more you will be paying as interest. So partially paying or foreclosing your loan will help you save a lot of money in the long run.

  • No Prepayment Charges on Floating Rate Loans
    Reserve Bank of India has strictly asked banks not to charge any foreclosure penalties against early repayment of floating rate loans. This means that you won’t incur additional costs in case you decide to prepay the entire personal loan amount.

 However, some banks do levy part-payment penalties. It’s advised to check with your lender to know more about such charges.

  • Mitigates Collateral-Related Risks
    Once you repay the loan, you are not liable to pay anything more to the lender. This automatically nullifies the risk of defaulting and frees your collateral (which could be your property) in the process.

Loan foreclosure: What May Not Work for You

Some of the negatives of loan foreclosure are -

 

  • The Financial Stress Involved
    Prepaying such a lump sum amount may get slightly overwhelming at times. It can be a problem during financially demanding situations. 

Hence, it’s always advised to opt for foreclosure of personal loan only if you have enough funds in your account to deal with emergency situations.

  • Missing Out on Investment Opportunities
    Let us imagine that you have enough balance in your account to foreclose your  loan. But did you consider investing this amount in channels that may give you more returns? 

Plan properly so that you don’t have to deal with the dilemma.

  • Additional Costs Involved
    Though RBI has asked banks not to levy penalty charges on floating rate loan prepayments, there are still some lenders who impose penalties especially if it is a fixed rate loan foreclosure.

 If your lender is one of them, you may have to incur additional costs, which can be heavy on your pocket depending on the outstanding or unsettled amount.

Checklist for Loan Foreclosure

Here’s what you need to ensure while foreclosing your loan -

  • Ensure that you are submitting all relevant documents; any invalid document may lead to rejection of your application.

  • Always calculate how much you will be saving by repaying the existing amount 

  • Check whether investing the amount is a better option than repaying. 

It’s best to take your time and contemplate whether you are ready to opt for loan foreclosure. Not taking an impulsive or hasty decision is the mantra here.

Personal Loan Foreclosure and Credit Score

Your credit score may get affected if you pay the remaining loan amount in one go especially if you have only paid a few EMIs. Most lenders including Money View do not allow foreclosure of loans before a certain number of EMIs have been paid.

 If you have taken a loan for 1 year, foreclosure after 1 month or 1 installment is not permitted. Usually, you have to complete at least 6 months or 12 months of EMI payments before you have the option to foreclose the loan.

Once you have paid the minimum number of EMIs required, you can request your lender for loan foreclosure.

You may have to pay a certain amount of money as prepayment fees to the bank in order to foreclose the loan as the lending company loses a large sum of money it would have otherwise received as interest.

How Does This Affect Your Credit Score?

One of the key factors affecting your credit score is the age of your loan and credit card accounts. When your loans and credit cards are active for a long time, the lenders can judge if you are able to pay the loan EMIs or credit card bill payments every month without fail. 

When you pay the EMIs without fail every month for a long period of time, it increases your overall creditworthiness. Hence, it also improves your credit score as credit bureaus believe in your reliability as a borrower. 

If you pay off the loan right after paying a few EMIs, the average age of your total active loan and credit card accounts decreases. It may negatively impact your credit score in the process.

In Conclusion

It is advisable that you opt for loan foreclosure only after a good number of EMIs have been paid such as for 6 months or 12 months. In that case, your timely payments per month will help boost your credit score and the loss incurred by the lender will not be as high resulting in no penalties. 

If you wish to avail a personal loan with flexible repayment terms and no foreclosure penalty, visit the Money View website or download the app to apply today.