The Complete Guide On Personal Loan Foreclosure

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There’s often a time in one’s life when a sudden event makes you apply for a quick personal loan. Applying for a quick personal loan is not hard, especially when applying via platforms like EarlySalary. But how do you get over the sudden debt you’ve entered into quickly? The answer is simple, personal loan foreclosures.

A personal loan foreclosure or personal loan prepayment is the process of repaying the remainder of a personal loan in a single payment instead of over multiple months via EMIs. In a foreclosure, the borrower pays back the loan in a lump sum potentially saving a large amount in interest.

A loan prepayment also improves your credit rating and reputation with the lender, making it easier for you to get loans with better terms in the future. Since foreclosure is also used to refer to the act of recovering money on defaulted loans by lenders, foreclosure by borrowers is usually referred to as loan prepayment

Importance Of Personal Loan Foreclosure

Borrowers often seek ways to reduce the amount of debt they’re under and prepayment of quick personal loans is a simple way of doing just that. Making loan prepayments is a quick and easy way to build your credit score. When you make a loan prepayment, you put extra money toward your principal balance. This reduces the amount of interest you’ll pay over the life of your loan which, too, is good for your credit. The best part? You don’t need a lot of money to make a difference.

Paying your personal loans earlier can help you save money in the long run. By paying off your loan early you’re reducing the amount of interest you’d otherwise pay over the life of the loan helping you save money and build your credit.

Keep In Mind

Even though loan prepayment is a good idea, there are some things you must keep in mind before going through with prepaying your instant loans in India. 

  • A few banks have ‘lock-in’ periods which can range from 1-3 years in which you’re not allowed to prepay your loan. According to the RBI floating-rate loans have no lock-in periods.
  • Your bank might charge a prepayment penalty if you decide to prepay the loan early, especially during the lock-in period. To ensure that you’re not losing money compare and contrast the amount paid via interest and the amount via prepayment fees. Or pick loan platforms like EarlySalary, for instant loans in India that don’t charge any prepayment penalty.
  • Most banks calculate the interest rates on loans with the reducing balance method. This means that the interest rate on the loan is higher at the beginning of the term than at the end which can affect your prepayment plan. Consider using a prepayment calculator to figure out how much you need to pay.

Personal Loan Foreclosure: Pros and Cons

Just like everything else, loan foreclosure has both advantages and disadvantages:

  • On the positive side, paying off your loans ahead of schedule reduces your debt burden. Every rupee you put toward paying down your loans reduces your monthly payments and the total amount of interest you’re paying over the life of your loan. 
  • This not only reduces the amount of interest you’re paying but can also save you money over time.
  • Prepaying a loan decreases your debt significantly and helps your CIBIL score. A higher CIBIL score makes you eligible for new loans with better terms and conditions.

On the other hand, while paying off your loans ahead of schedule is a great way to improve your financial health there are a few cons to consider. 

  • First, when you make extra payments on your loans you reduce the amount of disposable money you may have. If you need to make extra payments on your loans to save money, you might not be able to save as much money as you want. 
  • Second, paying off your loans earlier may make it difficult to qualify for new loans in the future.

Should You Prepay Your Loans?

Before deciding to prepay your loans the most important thing to do is figure out how much you’ll save in interest payments.

  • To calculate how much you can save by paying off your loans ahead of schedule, first figure out how much you pay in interest each month. 
  • The interest cost is usually listed as the annual percentage rate (APR) or the monthly interest cost on your loan statement. 
  • Next, figure out how much you can save by paying off your loans earlier. 
  • This is the amount of interest you’ll save based on the interest rate on your loan.

If the amount of interest you’re saving is lower compared to your bank’s prepayment fee then paying the loan over its term is a better option. But if you’re saving more on interest than you’re spending on prepayment fees, prepayment is undoubtedly the better option.


So, should you prepay your instant loans in India as quickly as possible to improve your financial health and credit scores? Or should you stay constant with the regular term payments to save money? It all depends on your priorities and financial situation. If the math checks out, then your quick personal loan foreclosure is a surefire way to improve your credit score, get rid of debt and lower your stress levels.

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