When you take a loan say for 5 or 10 years, you have to keep paying installments along with an interest for those long years. After a point of time, you may think to shut the loan account & breathe peacefully. A pre-closure of loan here can help you to make complete loan repayment before the preset time period, like 5 or 10 years.
So are you allowed to pre-close your loan account?
Of course, pre–closing a loan account needs compliance with a lot of terms and conditions as per the lending bank.
So, you can start by consulting your bank/ NBFC about the terms & conditions of pre-closure.
What do you think is ideal to pre-close a loan?
The decision of pre-closing a loan depends primarily on your personal finances & the ability to manage it too. Though, this can vary from person to person. So, precisely based on your finance handling skills, you can decide the ideal time for pre–closing your loan account. Obviously, if you have good savings and have been expecting a bonus as well, then it’s clearly ideal to make full repayment & get done with the high-cost loan.
How do you choose the time to pre-close the loan so the best of benefits can be availed?
As we may have observed that when the loan tenure is longer like 5-10 years, then in the initial years we end up paying the interest largely. And towards the end of the tenure, the interest amount reduces substantially. So, it’s a good act to pay up your loans in case it’s you have funds to sponsor them based on your fund availability and policies of the financial institution.
You tax benefits are equally important when you’re considering to pre-close your loans. So if you experience no tax benefits coming your way, then it’s best to use pre-closure as a valid option.
Additional Reading: Does foreclosure of a Personal Loan affect my CIBIL Score?
Let’s focus our attention on the benefits of a loan pre-closure.
The act of pre-closure surely has enough benefit to quote & highlighted below are a few to name:
- It potentially improves your credit report & CIBIL score so that you can comfortably take loans in the future.
- Your savings or newly earned finance can be put to good use.
- You’ll quickly become debt-free & live a more peaceful life without monthly installments.
- You will save exponentially by closing your loan account & not unnecessarily bear the interest amount.
- The saved amount can be used for potential investment avenues.
Now, let’s move a bit towards the disadvantages of pre-closing a loan:
A few of the disadvantages can be seen as under:
- You could be taking tax advantage based on the eligible interest amount, so you will lose that part of the deal.
- Your savings could have been used for a revenue-generating investment, instead of being used for the pre-closing of a loan.
To conclude, every bank/ NBFC has its exclusive terms & conditions when it comes to the pre-closing of a loan. So take a resolution to read the conditions properly before taking a hasty decision.
Looking for a Personal Loan. Apply Now for a loan upto Rs.2 Lakhs !