Step-by-Step Process to Foreclose the Personal Loan
By Anupama Deshpande | November 19, 2019

Foreclosure of the Personal Loan is the full repayment of the outstanding loan amount in lumpsum instead of paying it through EMIs. You can repay the loan anytime during your loan tenure. However, some of the lenders allow it only after completion of 12 months from the date of your first EMI.

Related reading Benefits of Pre-Closing Your Personal Loan

The major benefit of Foreclosure of the Personal Loan is that your interest cost will be less, in case of personal loan, the interest cost is very high so it will be more beneficial for you if you are prepaying your personal loan. Some of the lenders also levy some prepayment penalty if you are going to make prepayment of your loan. It is to not that the RBI allows banks to levy prepayment penalty only on the outstanding loan amount and not on the whole loan amount. Also, the lenders can not levy any prepayment penalty on floating rate loans and they are exempt from any kind of prepayment charges.

You may like to go for foreclosure of your personal loan account for any of the following reasons:

• You have got a surplus fund
• You want to decrease your debt liabilities
• Want to reduce your overall interest outgo
• Want to improve your credit score

Now let's come to Step-by-Step Process to Foreclose the Personal Loan which is described below:

Usually you are not allowed to make a prepayment during a period of 12 months from the date of your first EMI. Some lenders also require you to give a 30 days foreclosure intimation.

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1. You are required to inform the lender in writing, personally or via email, that you want to make full prepayment of your outstanding personal loan amount. You should mention your existing personal loan account number in your application. Also attach a copy of PAN and copy of address proof with the application.
2. Let the intimation period of 30 days get over. Not all the lenders require this foreclosure intimation and allow you settle down your outstanding loan whenever you want.
3. After your intimation period is complete, the lender will send you foreclosure statement of your loan account mentioning outstanding loan amount after taking into account the interest paid so far and the date of foreclosure.
4. You are now required to submit this full prepayment amount's cheque to the lender at least 7 working days before your next EMI date. You can make the foreclosure payment either via cheque/cash/demand draft (DD)/netbanking.
5. Take acknowledgement of the full prepayment amount that you have paid.
6. As soon as your foreclosure cheque gets cleared, your loan closure will be processed, EMI instructions will be stopped forthwith and your loan account will be closed in lender's records.
7. Lender wil issue you a No Objection Certificate (NOC) stating that no amount is payable and also send you the balance Post Dated Cheques (if you are making payment of EMIs through post-dated cheques) to your correspondence address.

Whether you should foreclose your personal loan is your sole decision still you must take due care while making prepayment of your outstanding personal loan. You must check whether you have got surplus funds (which are not required for any other urgent purpose) to prepay your loan. Also you should not forget to calculate the opportunity cost of the funds in your hand which means what would be more beneficial for you- to prepay your personal loan or to invest this fund to get better returns as compared to your loan interest cost.