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What is the Best Way to Pre-Close Personal Loan?

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Whenever it comes to getting quick money for meeting your urgent financial needs personal loan is the first option that people usually think of. Personal Loans come extremely convenient especially during an emergency, and because of this easy availability their interest rates are usually higher than any other form of secured or unsecured loan.

No matter how handy and convenient the preposition of applying for a home loan sounds, there are always some speculations about borrowing money. As far as the personal loan is concerned the major questions that a borrower has are related to its service charges, interest rates and other fees that may be levied upon it. Foreclosure and prepayment of the personal loan are other two important things that keep people sceptical.

Here we will discuss about the terms that are commonly used for the closure of the personal loan so that you can get a fair idea about these terms. To start with, there are three ways to close the Personal Loan:

  1. Regular Closure
  2. Preclosure/Foreclosure
  3. Part-payment

Regular Closure of Personal Loan

In this mode of loan repayment, the borrower makes regular payments to pay off the loan amount in the pre-decided time period mentioned in the loan agreement. Here is how you can get your Personal Loan closed:

STEP 1: Make the last instalment of the personal loan and contact the bank on closing the loan.

STEP 2: Collect all your documents like your Identity Proof, cheque with final payment and the Loan Account number. The bank officials will verify all the details before proceeding the closure.

STEP 3: Once all the paperwork is done, the bank will provide with a ‘Non-Objection Certificate’ (NOC) which is a proof that the borrower has paid the entire loan amount and that there is no outstanding balance which is pending.

STEP 4: For any assistance in closing your personal loan through regular mode, one can contact the customer care service of the bank and seek support.

Pre-Closure Charges of Personal Loan

Pre-closure is the process when one repays the loan before the loan tenure ends. Some lenders do levy a penalty for preclosing the loan. However, pre-closure at times does help in lowering the interest rates and debt burden. The banks have different lock-in periods before which one can close the loan. Moreover, the banks do charge a pre-closure fee to compensate on the interest amount lost.

Below is the table with personal loan pre-closure charges of the top banks in India.

BANK LOCK-IN-PERIOD PRE-CLOSURE CHARGES
HDFC Bank Allowed after 12 EMI’s
  • Salaried – 13-24 Months- 4% of Outstanding Principal
  • 25-36 Months- 3% of Outstanding Principal
  • More than 36 Months- 2% of Outstanding Principal
ICICI Bank Allowed after 1st Instalment 5% of outstanding Principal + GST
State Bank of India Allowed at any stage NIL
YES Bank Allowed after 12 EMI’s
  • 13-24 Months- 4% of Outstanding Principal
  • 25-36 Months- 3% of Outstanding Principal
  • 37-48 Months- 2% of Outstanding Principal
  • More than 48 Months- NIL
Axis Bank After completion of 1st EMI NIL
Bajaj Finserv After completion of 1 month from the Loan Disbursal 4% plus applicable taxes on Outstanding Principal*

*Foreclosure Charges for term loan will be applicable on the current Outstanding Principal

*Foreclosure charges for Flexi Loan will also be calculated on the current Outstanding Principal

*Foreclosure charges for Flexi Hybrid Loan will be as per the following:

– Initial Tenor – 4% plus applicable taxes, on sanctioned amount

-Subsequent Tenor – 4% plus applicable taxes on reduced assigned limit

Citi Bank Allowed after 1 year post booking 4% on total Outstanding Principal
Kotak Mahindra Allowed after 12 months from the date of first EMI. 30 days foreclosure intimation period is mandatory. 5% + service tax on Outstanding Principal
IndusInd Bank Salaried individuals: Allowed after paying 12 Instalments
Self-Employed Individuals: Allowed anytime after 6 instalments
Salaried: 4% of the Outstanding Principal after repayment of 12 EMIs.
Self Employed: 4% of the Outstanding Principal after repayment of 6 EMIs.
Standard Chartered Bank Allowed anytime after completion of 12 EMIs with 21 days notice to the Bank 5% of Outstanding Principal

Procedure for Pre-Closing Personal Loan:

STEP 1: Visit the bank where your Personal Loan is active

STEP 2: Carry the necessary documents such as ID Proof, Bank statements mentioning the final clearance of the last EMI, Cheque or Demand Draft with which you will pay the entire balance amount.

STEP 3: The lenders usually charge some amount from the loan amount which must be paid along with the prepayment.

STEP 4: Once the entire amount is paid either through a Cheque or Demand Draft, the Bank will give an acknowledgement letter which must be kept for future reference.

Once all the steps are complete, the bank will send the loan agreement after a few days of preclosing the Loan.

Part Payment of Personal Loan

Repaying your loan amount is known as personal loan pre-payment or personal loan part pre-payment.

If at a point, you have a large sum of money and want to use it for repaying the loan early, that would result in either a reduction of the EMI or reduction in the loan tenure. To make a part payment of a personal loan, one needs to visit the bank and inform the same to them. Once your request is submitted, revised instructions will be given. One needs to continue to repay the subsequent EMIs as shared by the bank.

At any stage, closing personal loan the right way is extremely important as it may have an effect on your CIBIL Score. It is important to be aware of the procedures involved in properly closing the Personal Loan and at any stage you face an issue or have a query, the customer service of the Banks can help you get through the same.

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