We tend to turn to a personal loan when we need money urgently. For instance, if there’s a medical emergency to be dealt with, if we are planning a trip to our dream destination, or chalking up an expensive wedding. Personal loan interest rates are generally high since they are mostly unsecured debt — meaning there’s no collateral back them up in case the customer defaults. As such equated monthly instalments (EMIs) on a personal loan could be burdensome.
There are three ways a personal loan could be paid back or closed — a) regular payments where you pay a monthly or quarterly EMI. On the payment of the last EMI, the borrower has to seek a no objection certificate and a closure certificate from the lender saying that the loan has been closed; b) part time payment could be availed if you suddenly have a large cash flow — for instance from a bonus or a property sale — which will substantially bring down the EMIs; and c) pre-closure is the the third option if you have received windfall money and can afford to pay back the entire amount.
Pre-closure of loans comes with its share of pros and cons. Availing this option generally means attracting a penalty from your lender since they have to forego a large amount in terms of interest payments. Another point to consider for pre-closing a long term loan is the money you're paying back now versus the inflation adjusted amount you would be paying over the lifetime of the repayment if you continue with the EMIs.
However, there’s also a very simple case for paying back the full outstanding amount on any high interest credit — personal loan interest rates could eat up any other value yielding investments that you might have made. Legendary investor Warren Buffet is quoted to have said, “I don’t know how to make 18%. If I owe money with 18% interest, the first thing I would do with any money I have is to pay it. It’s gonna be way better than any investment idea I have got."
Step 1:Visit the nearest branch of the lender.
Step 2:Carry necessary documents — Aadhaar card or Voter ID for identity proof, bank statements mentioning the final clearance of the last EMI, cheque or demand draft with which you wish to pay the balance amount.
Step 3:You will also have to pay taxes and foreclosure charges along with the total outstanding amount.
Step 4:Once you have paid the entire amount, the lender will give a letter of acknowledgement which needs to be preserved for future reference.
Step 5:The lender will send you a loan agreement a few days after a few days of pre-closing the loan.
The tax applicable during the pre-closure would be 18% GST. Before you end up at the lender’s office, it is a good idea to inform the customer care and check if there are additional formalities or requirements. You can also ask for a pre-closure schedule which generally mentions the various amounts you would have to pay under headers such as GST and foreclosure fee.
Prepayment of your personal loan would also have a bearing on your credit rating eventually. This could mean that you qualify for lower personal loan interest rates the next time you need to avail one. One important point to remember if you are planning to pre-close is that the earlier it is in the tenure of the loan the better — as you will save a lot on EMIs. A personal loan generally has a lock-in period of one year after which you can repay it at a go if you want.
If you are looking for a personal loan, then do consider Bajaj Finserv Personal Loans available on Finserv MARKETS and also on our personal loan app. Whatever your need be, you can avail a Bajaj Finserv personal loan without a guarantor with an option to spread your repayment over a period of one year to five years. You also have the option to pre-close your personal loan on the payment of a small foreclosure charge and without any hassles if you don’t want to keep paying EMIs. Most importantly, you can avail attractive personal loan interest rates starting from 12.99% per annum. Bajaj Finserv Personal Loans available on Finserv MARKETS also have minimum processing fees and annual maintenance charges.
“Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.”