A Brief Overview
Foreclose or pre-closure refers to the process by which any and all outstanding amount pertaining to a personal loan is paid back to the creditor in its entirety and prior to the date by which it is due.
Depending upon who you choose to avail your personal loan from, there exists a lock in period which ordinarily amounts to a year following which you can are entitled to pay your dues in their entirety in one fell swoop and settle the amount you owed.
Understanding Personal Loan Foreclosures
Foreclosures can be carried out via a bank as well as by the borrower responsible for availing of the loan in question.
- The bank forecloses the loan
In the event that a bank forecloses a loan, it serves as one of the last resorts that the lender decides to take. This is owed to the fact that in such scenarios the borrower is no longer financially capable of repaying the loan and begins to default on their equated monthly instalment.
In such instances, the lender is then compelled to auction the collateral provided by the borrower first such that then funds owed can be generated. Only after this is loaned account foreclosed.
- The borrower forecloses the loan
Borrowers may choose to foreclose their loan account in order to be free of debt. It is advisable to be clear with what the terms of foreclosure are such that you don’t make any decisions in haste.
It is important to be aware of what the charges associated with foreclosing a loan account are. These ordinarily range between 3 and 6 per cent of the principal amount that is meant to be paid.
Fast Facts Pertaining to Personal Loan Foreclosure
Owing to the fact that a vast number of lenders don’t permit foreclosures to be made within a year of the loan being disbursed, borrowers end up with the short end of the stick when they realize a large chunk of the interest is applicable during the first 12 months while the principal is still significant. In such scenarios, it is best to prepay the amount as fast as you can while the tenor is applicable such that you don’t avoid missing out on savings on the interest aspect of your loan.
It is important to carry proof of your identity and your loan account number along with a cheque to repay the balance owed towards your loan when you approach your lender for a foreclosure.
What Factors Affect Personal Loan Interest Rates
It is important to understand that the following factors play a role in what your personal loan interest rate amounts to.
Income stability
Those of whom have stable sources of income reassure lenders that they will be able to repay their loan with ease owing to which the interest rates scored are likely to be more attractive.
Repayment history
Those who have exceptionally good records of repayment history are likely to avail of good interest rates in comparison to those who do not.
Relationship with the bank
The kind of relationship you maintain with your bank is capable of influencing the interest rate applicable to your personal loan. Those who have savings accounts with the bank in question are likely to have an advantage. In order to avail of low interest personal loans, it is important to cultivate a good relationship with your bank and maintain a good credit score. Your negotiation skills can also improve the same.
Conclusion
In order to learn more about personal loans and understand the interest and tenure applicable to the same make use of a personal loan repayment calculator available on Finserv MARKETS.
