Personal Loan Pre-closure: Key Things To Know Before You Pay It Off

A personal loan is usually taken to cover emergency expenses, make purchases, or consolidate debts, and is repaid in easy monthly instalments over the loan tenure. Borrowers also have the option to prepay the outstanding balance, subject to applicable prepayment charges.

Sometimes, however, the prepayment of a personal loan becomes difficult when someone has accepted the funds without reading the complete terms and conditions of the loan agreement. The borrower, therefore, needs to study the loan agreement carefully and ask the lender about their prepayment rules before accepting a personal loan.

Some lenders grant borrowers the ability to pay off their loans early without any fees, but many others require borrowers to pay specific charges or penalties when they pay off their loans in advance.

You should decide to repay your personal loan when you receive new funds or when your financial situation improves. The process of paying off personal loans requires debtors to understand every advantage and disadvantage before proceeding with repayment when their financial situation allows it.

Follow these steps to successfully pay off your personal loan before the repayment period ends.

Review the Loan Agreement

The lender will present all loan information to you together with a contract which requires your signature when you accept any loan. All information about your loan amount as well as the borrowing terms remain contained in the agreement.

You need to examine the loan agreement terms about prepayment because they reveal the exact costs which appear during early loan repayment.

Contact the Lender

Contact your lender to find out their rules about prepayment. You must request information about all fees and penalties which may be levied during early loan repayment as part of the repayment process. Contact your bank to discuss early loan repayment if you have enough money to finish your payments before the end of the loan term. Verify if the lender requires any penalties for early loan repayment.

Calculate the Outstanding Amount

Calculate the entire amount owed, including interest and fees, up until the prepayment date. Lenders might give a precise amount or explain how to figure it out.

Arrange for Repayment

The payment method for early loan settlement depends on the lender's guidelines, which might require you to make one large payment. The lender will give you payment instructions which contain either account information or payment options.

Ask Lender For Proof

You have to ask your lender for proof that the loan has been completely paid off after you finish making all the payments. Keep this confirmation document as proof of loan settlement and for future reference.

You also need to obtain an NOC from the lender to prevent any future payment problems.

Talk to your lender directly to learn about your personal loan agreement details, which will help you handle the prepayment process properly.