can you pay off a personal loan early

How is an individual loan?

Simply put, it is a non-insured loan from a bank or non-bank financial company (NBFC) that is taken by individuals to meet their personal needs. It is based on key factors such as wages, credit and job history, reimbursement ability, etc.

Contrary to a house or car loan, a personal loan against any asset is not secured. Since the borrower is unsecured and does not make use of collateral, such as gold or land, the borrower can not sell something of its own in the event of a default. The interest rates on personal loans are higher than on house, car and gold loans due to the higher perceived risk of penalty.

However, like any other loan, personal loan failure is not healthy, because it will be reflected in your credit report and could cause issues with your potential credit card application or any loan application.

Types Of Fore closure

  • Regular Closure
  • Preclosure/Foreclosure
  • Part-payment

Regular closure for Personal loan

  • Under the loan repayment process, the borrower periodically pays the loan sum in the pre-decided timeframe agreed to in the loan agreement. Here’s how your personal loan can be closed:
  • Make the final repayment of your personal loan and notify the bank when the loan is closed.
  • Collect all your Identification papers, final payment check and Loan Account Number. The bank officials will check all the details before closing.
  • After all the paperwork has been carried out, the bank must issue a ‘Non-Objection Certificate,’ which shows that the borrower has paid the full amount of the loan and that there is no outstanding balance pending.
  • To help you closing your personal loan in daily mode, you can contact the bank’s customer service department and request assistance.

Pre-closing process for personal loans:

  • Visit the bank that unlocks your personal loan
  • Take the necessary documents, such as ID Proof, bank statements with a final clearance of the last EMI, cheque or demand draft for the full balance.
  • The borrowers generally charge some amount of the loan amount to be paid together with the advance payment.
  • Once a cheque or a payment draft has paid the entire amount, the Bank must send a letter of acknowledgment to be held for future reference.
  • After all steps are completed, after a few days of closing of the loan , the bank must submit the loan agreement.

Personal loan part payment

The repayment of your loan is known as prepaid personal loan or prepaid personal loan portion.

If at some stage you have a large sum of money and decide to use it to repay the loan early, it can lead to a reduction in the EMI or to a reduction in the loan term. To order to make a partial payment for a personal loan, the bank must be visited and told. After your request has been sent, you will receive updated instructions. The resulting EMIs must be reimbursed as shared by the Bank.

At any point it is incredibly important to close your personal loan correctly because it could affect your CIBIL score. It is important to be aware of the procedures involved in the proper closing of the Personal Loan and the customer service of the banks will assist you in getting through the same issue or question at any time.

Prepayment  Personal Loan Benefits

Debt free Free

Some of the reasons for a personal loan is that people need funds to cover immediate financial expenses. Nonetheless, the average is higher. Prepaying the loan will make managing the debt burden easy for you.

Save on rate of interest

The advantage of the prepayment of personal loans is that it saves the interest rate. Some banks have a lock-in duration that allows you to prepay the loan only after all EMIs have been repaid. You will pay the loan in full and save on the rate of interest.

And if you think about pre-payment, you have to think about the benefits and disadvantages. Personal loan advance payment is at an interest rate that can only be carried forward after you have passed the duration of lock-in. Such charges can often be larger. Remember this as the shortlist parameter when you select a bank for the application for a personal loan.

The Bottom Line

Personal loan prepaid can be beneficial even if the loan amount is prepaid in the early stages , i.e. when the time of lock-in is over. This is an ideal way of managing the difficulty of charging the EMIs continuously. You will also boost the credit score by completing your personal loan before payment.

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