How To Close A Personal Loan Early To Save Interest?

Personal Loans are an unsecured form of a credit to get the funds you need right away. Its versatility makes it suitable for a variety of uses, including weddings, house renovations, vacations, debt consolidation, and whatnot. Additionally, the sum borrowed has no restrictions and can be put to any use the borrower would want. 

To top it all it’s very easy to avail of a Personal Loan. You just need to fulfill simple eligibility criteria regarding age, citizenship, monthly income, and credit score. In contrast to other forms of borrowing, a Personal Loan can accelerate the process of building your credit. This is due to the risk that comes with it, as it is an unsecured loan.

Benefits and Features of Personal Loan

Here are some key benefits & features of a Personal Loan:

No collateral is required
The fact that an online Personal Loan is unsecured is one of its advantages. This indicates that you are exempt from pledging any collateral for your loan. If you match the eligibility standards, you can simply obtain a low-interest Personal Loan. 

Minimal Documentation
The procedure of verification and documentation has been easier in this era of digitization. This is true for instant Personal Loans because they disburse quickly and only need little documentation to get approved.

Easy Approval
Personal Loans are quick and simple to be approved making them the finest option in times of financial difficulty. Additionally, the procedure has gone digital, which has made the verification process a whole lot faster.

Custom Tenure Options
The ability to select a tenure based on your ability to repay a Personal Loan is another advantage. This makes sure that paying back your loan won't put a strain on your monthly spending.

Multipurpose in nature
The only things that a Personal Loan cannot be utilized for are investments or unlawful actions. But apart from that, it is very versatile and proves useful for a variety of things. When obtained, other types of credit can only be utilized for that specific reason. A home loan, for instance, is used to buy a home, whereas a car loan is used to buy a car. A Personal Loan can be obtained, though, to cover any pressing needs.

So, if you wish to apply for a Personal Loan, you can do so by going to a bank or an NBFC like Poonawalla Fincorp which offers Personal Loans at attractive interest rates. Although Personal Loan interest rates differ amongst lenders, they typically fall between 8% and 14% annually. But what if we say, you can save on the interest amount by just a simple step i.e pre-closure of Personal Loan. 

Pre-closure of Personal Loan

Undoubtedly, a Personal Loan can be of great assistance in a time of financial crisis. However, before applying for a Personal Loan, you should know that you will need to make monthly payments toward the loan's payback. And as a result, you would have to organize your funds appropriately. But if you want to stop your EMIs, you can do preclosure of Personal Loan by paying the principal balance amount. 
This said, pre-closing a loan offers the following advantages as well: 

• You simply avoid paying interest on the outstanding loan balance
• Your EMIs will end, so you won't need to budget for them when creating your monthly payment schedule.
• There won’t be any outstanding in your name.
• You’ll have surplus cash in hand.
• You would be able to apply for a new loan with the lender.
• You will have an improved credit score.

How You Can Pre-Close Your Personal Loan?

Pre-closure of Personal Loan is not a complex task. Although the process varies from lender to lender, the following are some fundamental actions you can take when pre-closing a Personal Loan:

Step 1: Since Personal Loans cannot be pre-closed online, you would need to go to the closest branch of the financial institution from where you obtained your Personal Loan. You can also send a representative to visit the bank on your behalf if you are unable to do so on your own. However, a letter of authorization properly signed by you should be carried by your agent. 

Along with the necessary paperwork, he or she should have the following:

• Loan applicant’s identification proof (such as PAN Card, Passport, Driving Licence, or Voters ID).
• Authorisation letter from the loan applicant.

Step 2: Tell the customer service representative that you wish to close your Personal Loan early and request a loan pre-closure form.

Step 3: Fill out the loan pre-closure form completely, including your name, loan account number, if you wish to make a full or partial prepayment, and other information.

Step 4: Determine the total amount you must pay for making pre-closure of Personal Loan. The remaining loan balance and the pre-closure charges for Personal Loan assessed by your lender will also be included.

Step 5: Pay the pre-closing balance of your Personal Loan via a check, demand draft, cash payment, or online payment option. 

Step 6: Obtain the lender's acknowledgment. Until you get the final loan pre-closure letter and No Dues Certificate (NDC) from your lender, you need to hold onto this acknowledgment which could take a few days.

The majority of banks let you do a pre-closure of Personal Loan by paying the balance in full at any time following six instalments. However, doing so results in a pre-payment penalty also known as pre-closure charges for Personal Loan. 

Pre-Closure Charges for Personal Loan

You might be required to pay a pre-closure fee to the lender when you prepay your Personal Loan in full or in part. This fee is typically a predetermined percentage of the borrower's payments or the outstanding loan balance. Pre-closure charges for Personal Loan vary from lender to lender and often run between 1% and 3%.
Some lenders also have pre-closure lock-in periods for their loans. This indicates that you cannot foreclose on a Personal Loan until you have made a particular amount of EMI payments. This lock-in period could be anywhere from one to twelve months long.

Documents Required for Personal Loan Pre-Closure

The following is a list of the documents you would need to pre-close your Personal Loan:

• Necessary loan paperwork.
• Identification documents such as a passport, an Aadhaar card, a voter ID card, etc.
• Loan statements that list the EMI payments made so far.
• Demand draft or a check.

At Poonawalla Fincorp, we recognize that when it comes to Personal Loans, comfort and timeliness are essential. We provide a range of loans that are ideal for today's borrowers. It is advisable to pay off Personal Loans earlier than later in the loan term. Therefore, to assist you in determining if you want to pre-close your Personal Loan, first check the pre-closure fees to ensure they are not excessive. Check the interest on Personal Loan responsibility you are carrying after that. You should accept it if the pre-closure fees imposed by the lender are more. And lastly, check how pre-closure will affect your tax payments.

Tips for Paying off Personal Loan Early.

Paying off a Personal Loan early can be a smart financial move that saves you money on interest and gives you peace of mind. Following are some handy tips that you can follow to achieve financial freedom:

• Create a Budget: Assess your income and expenses to determine how much you can allocate towards loan repayment each month. Prioritize your loan payments and cut back on unnecessary expenses.
• Increase Your Monthly Payments: Paying more than just the minimum due amount every month will help you to pay off the loan much faster. Hence, even a small amount of additional payment can make a huge difference in the long run.
• Negotiate a lower interest rate: Contact your lender and see if they are willing to reduce your interest rate. A lower rate means more of your payment goes towards the principal, accelerating your payoff.
• Avoid New Debts and Stay Disciplined: Refrain from taking on new debts while paying off your Personal Loan. Focus on reducing your overall debt burden and minimize credit card usage to stay disciplined and track your progress to stay motivated.

Key Takeaways

In conclusion, closing a Personal Loan early can be a smart financial move to save on interest costs. By paying off the loan ahead of schedule, borrowers can reduce the overall amount of interest they would have paid over the loan term. To achieve this, it is important to follow a few key steps: First, determine the outstanding balance and any prepayment penalties. Next, allocate additional funds towards the loan whenever possible, making sure to communicate the intention to pay off the loan early with the lender. Finally, regularly monitor the loan's progress and adjust payment amounts accordingly. By proactively managing the loan repayment, borrowers can enjoy the benefits of early loan closure and potentially save a significant amount of money in interest charges.

FAQs

• What is the pre-payment penalty applied to Personal Loan pre-closure?

A prepayment penalty is a fee charged by the lenders if you pay off your Personal Loan early before the end of the loan tenure. Thus, some lending institutions do charge a penalty for loan pre-closure.

• Which will be better for my credit score? Repaying the loan over the tenure or making a foreclosure?

Repaying the loan over the loan tenure will be better for your credit score than making a foreclosure since it demonstrates responsible financial behavior and shows lenders that you can manage your debts effectively.