Prepaying a home loan or a personal loan can be a bit tricky, especially when you aren’t cognizant of the formalities involved and the penalties for foreclosing. With that said, prepayments are a good option, since they are beneficial to the borrower in many ways like reduce the interest burden, improve credit score and so on.
As soon as you land a promotion or salary hike, the first thing that pops into one’s mind is, “Woohoo! Now, I can be free from my EMI burden”.
Getting free from your loan repayments sounds exciting, but, here are a few things that you must consider when foreclosing your instant personal loan or other types of loans.
#1: Make an informed decision when selecting your loan
Though this doesn’t deal with closing your loan, you must put in a lot of thought and research when it comes to selecting the right type of loan product. Check out various options before you take the final call. Getting a home loan or personal loan that lets you prepay at any time during the tenure without having to incur additional charges will help you when you foreclose your loans.
#2: Pay Regular, Steady EMIs
To ensure that foreclosing a loan works in your favor, you have to keep your EMIs unchanged. When it comes to prepaying a loan, you have two options – either increase the EMI or reduce the tenure. So, select an EMI that doesn’t pinch you and stick to it.
#3: Prepay as Early as Possible
The main purpose of foreclosing an easy personal loan or vehicle loan is to reduce the interest you pay for the principal. Most initial loan EMIs contribute to the interest repayment. So, in simple terms, the earlier you foreclose your loan, the higher you save on interest payment. Avoid closing your loans towards the lag end of the tenure as it doesn’t make any sense financially.
#1: Don’t fail to calculate the Benefits
Prepaying a loan may not be the best option always. So, before you take any hasty decisions, spare some time to weigh the benefits of foreclosing with the penalties and other charges.
#2: Don’t forget the Tax Benefits
Loans offer great tax benefits and other attractive rebates. This is a good reason to continue paying the loan for the rest of the tenure to keep on enjoying these tax benefits.
#3: Don’t choose to repay the entire loan amount
Instead of opting to close the second home loan or other loans completely, you can choose to repay a partial loan amount.
#4: Don’t forget to claim the acknowledgment for Foreclosure
Getting an acknowledgment is essential to avoid any discrepancies later on. Ensure that it is signed and stamped officially by the bank.
#5: Don’t forget to stop your Auto-Debits or Collect the Unused Cheques
If you have set up an auto-debit for your loan repayment, then make sure to discontinue it. Also, collect any unused cheques from your bank to prevent misuse.
Now, that you are aware of the entire Do’s and Don’ts for foreclosing home loans, personal loans or auto loans, it’s time to get the ball rolling!