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Loan Fore-Closing: Is it right to pay the loan before time, know the advantages and disadvantages

When someone needs more money at once, people often think of borrowing from a bank. On taking a loan, you have to pay EMI for a long time and also get huge interest. If your loan tenure is not over yet and you have enough money to repay it, you can close it by fore-closing the loan. Let us know about it in detail.

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vikram univ news

HR Mandi Bhav, New Delhi: When someone needs more money at once, people often think of borrowing from the bank. On taking a loan, you have to pay EMI for a long time and also get huge interest.

If your loan tenure is not yet over and you have enough money to repay it, you can close it by foreclosing the loan. By doing this you will have to pay less interest to the bank.

But some things have to be kept in mind while taking loan. Because apart from some benefits, there may also be some disadvantages. Today we are going to tell you whether loan fore-closing is beneficial or harmful for you.

These are the benefits of loan fore-closing

By paying before time, the interest charged on the loan is saved. You can first repay the loan which has higher interest rate if you have taken more than one loan. 

You can repay credit card, EMI, car or bike loan, personal loan etc. one by one. You also have the option to transfer the loan. You can transfer your loan from a bank with a higher interest rate to a bank with a lower interest rate.

Many charges have to be paid for repaying the loan before time.

Many banks charge a fee for premature loan repayment. If you are thinking of foreclosing any of your loans, you should first contact the bank. 

Many banks charge 1 to 5 percent of the remaining loan. This is done so that some of the loss on interest can be paid. You can decide whether to repay the loan or not based on the fore-closing charges and interest on the remaining EMI.

Remember to obtain NOC certificate

After fore-closing the loan, it is mandatory for you to obtain NOC certificate from the bank. You have repaid the loan, proof of which is this certificate. Additionally, NEC (Non-Encumbrance Certificate) is required for all matters related to home loan or property. 

At the same time, after paying the loan, you will have to update your CIBIL score on time. Because it usually takes a lot of time to complete, which can affect your CIBIL score.

Does it impact credit score?

Making loan prepayment does not have an immediate impact on your credit score, but paying off the loan can increase your score in the long run. Part payment, however, has no impact on the credit score.