Personal loans are a great option to deal with financial problems in home, car, bills, education fees and other expenses. When you get a personal loan, you have to repay it in monthly instalments over a fixed period, which is called EMI. But if you want to repay the amount of your remaining personal loan in one go, then it is called personal loan foreclosure or prepayment.
What are the benefits of personal loan foreclosure?
Pre-closure is done to reduce the cost of credit. If you want to repay your loan amount at one go, you can save a lot of interest.
Understand this by example
Personal loan = Rs 2 lakh
Rate of interest = 15 percent
Duration = 5 years
EMI = Rs 4758
The total interest you will pay over the entire period will be Rs 85,479.
By the end of the first year, you will pay Rs 29,039 as premium and Rs 28,057 as interest. If you think of closing the loan now, you can save Rs 57,422 as interest rate.
But this is possible only if the lender does not take the prepayment penalty from you. If you think that you will foreclose the loan, then you should apply a personal loan to a lender who does not take a prepayment penalty. Like personal loans, there are foreclosure charges on home and auto loans.