Foreclosing a Personal Loan partially or fully is a proven way to cut down on the interest amount. To save on the interest part of the loan, the foreclosure charges must not be more than the interest amount you’re aiming to save.
While some lenders offer benefits like zero foreclosure charges, others may impose a penalty for foreclosure. As such, careful consideration is required when closing a loan early to save on interest.
In this read, we will explore the benefits of foreclosing a Personal Loan and walk you through the steps to do it correctly. Read on to know more!
What is Foreclosure of a Personal Loan

Foreclosure of a Personal Loan is essentially paying off the outstanding loan amount before the completion of the loan tenure. Closing a Personal Loan early reduces the overall tenure, thereby relieving you from bearing interest charges over the tenure. However, this also means that instead of spreading out the cost over a pre-determined tenure, you must pay a lump sum amount at once.
Types of Personal Loan Foreclosure
Lenders offer two main types of loan foreclosure benefits as follows:
Full Foreclosure: A full foreclosure of your Personal Loan means that you pay off the entire outstanding amount at once. Lenders usually have a lock-in period ranging from 6 to 12 months before you can fully foreclose your loan. However, once you do, you’re freed from the burden of monthly EMIs and save on the entire interest amount.
Partial Foreclosure: A partial foreclosure of your Personal Loan means paying more than your predetermined monthly EMI amount. The fundamental benefit of this is that you gradually reduce the principal outstanding amount with each partial pre-payment. Consequently, your monthly EMI amount as well as the interest costs are also reduced.
Advantages and Disadvantages of Closing a Personal Loan Early
At the surface, closing a Personal Loan early may seem to be a lucrative benefit. It allows you to maximise savings on the interest amount and reduce the EMI burden.
A closer consideration, however, highlights various pros and cons of foreclosing your Personal Loan, as highlighted below:
Advantages |
Disadvantages |
Savings on interest amount |
May have high foreclosure charges |
Reduces/removes EMI obligations |
Tax benefits cannot be availed with foreclosure |
Reduction of total debt |
Must pay a lump sum amount upfront |
Helps boost credit score |
May not be possible before the lender’s lock-in period. |
How to Save Interest by Foreclosing a Personal Loan?
Closing a Personal Loan early can be a lucrative benefit and offer significant savings when done correctly. However, the following points must be considered to reap the maximum benefits of saving interest by foreclosing your loan.
Check for foreclosure charge
If your lender charges a foreclosure fee, then finding out the breakeven point is crucial for saving interest. Ideally, you must still be able to save on significant interest after paying the foreclosure charges.
Consider a Balance Transfer
If your lender imposes a hefty penalty for foreclosure that outweighs the interest savings, then you can consider a balance transfer of your existing loan to a different lender. However, in such a case, it is equally important to verify if the new lender has a lock-in period in place or foreclosure charges.
Consider Partial Pre-Payments
If closing your Personal Loan does not practically lead to any savings, then you can resort to partial pre-payments. This not only helps you to reduce the monthly EMI amount but also saves interest.
Consider Investment Options
If none of the considerations lead to savings on interest by foreclosing your loan, then investing the lump sum into reasonable investment instruments can help you recover the interest charges with the returns.
How to Close Your Personal Loan Early
Most lenders today have a digital platform to foreclose your Personal Loan online. This eliminates branch visits and expedites the process.
The following steps can help you navigate Personal Loan foreclosure on most lenders’ websites.
Step 1: Visit the official website/app of your lender
Step 2: Log in to your loan account
Step 3: Repay your total outstanding amount to close the loan early.
Step 4: Once the loan is closed, you’ll receive an on-screen confirmation.
Just like the regular closure of a Personal Loan, early foreclosure is also acknowledged officially by most lenders along with a No Dues certificate. Your loan account will appear as “Closed” in your credit report.
To Conclude
Closing your Personal Loan early offers significant benefits in terms of saving on the interest component of the loan. In addition, it also reduces the overall debt burden, although you must make a one-time lump sum payment to foreclose the loan. Ideally, for maximum savings on interest, the foreclosure charges must not outweigh the savings.
Poonawalla Fincorp offers personal loans without any foreclosure charges once you’ve paid the first six EMIs if you foreclose using your funds. Apply now and enjoy affordable loans at competitive interest rates.
Frequently Asked Questions
Can I pay off my Personal Loan early to save on interest?
Depending on whether your lender charges a foreclosure fee, you can foreclose your Personal Loan early to save on interest. However, the foreclosure charges must not outweigh the total interest savings.
What are the benefits of foreclosing a Personal Loan early?
Foreclosing a Personal Loan early can help save on interest while also offering additional benefits such as reducing your debt obligations. It can also boost your CIBIL score.
Is there any impact of Personal Loan foreclosure on credit score?
Depending on other factors, such as timely repayments, foreclosing a Personal Loan can have a positive or neutral effect on your credit score. However, once foreclosed, it appears as “Closed” in your credit reports.
Where can I avail of a Personal Loan without foreclosure charges?
Poonawalla Fincorp offer personal loans up to ₹50 Lakhs with zero foreclosure fees after the repayment of the first six EMIs. However, you must foreclose using your own funds to avail of this benefit.
How can I foreclose my Personal Loan without paying charges?
You can foreclose a Personal Loan without charges only if your lender has provisions for it. You can also opt for partial pre-payments to reduce EMI burden and interest.
When should I avoid foreclosing a Personal Loan early?
You should refrain from foreclosing a Personal Loan if you’re aiming to build credit score by timely repayment of your EMIs. Additionally, foreclosing a Personal Loan is not recommended if you’ve only a few EMIs left, or the foreclosure charges are too high.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply