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Personal Loan Preclosure Procedure



Personal loan preclosure procedure
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Foreclosure of loan, also known as loan closure refers to the process in which a borrower pays off their loan before the designated tenure. Loan foreclosure is a simple way in which the borrower can repay the entire outstanding amount, including interest, ahead of schedule. A lot of leading banks and private lenders offer loan closure facilities thus allowing the borrowers to become free of their financial obligations.

What is personal loan Preclosure?

Personal foreclosure loan is a simple way to repay the outstanding loan amount in full before the agreed-upon tenure. This option can be availed by the borrowers to settle their loans ahead of the tenure which results in saving overall cost and reducing overall interest payments. To complete the loan foreclosure, the lenders charge a pre-Payclosure fee which is a percentage of the outstanding loan amount.

Why should you consider preclosing your personal loan?

Preclosing your personal loan can offer several advantages like it allows you to save on your interest thus reducing the burden of the loan. Additionally, foreclosure of a loan can improve your credit score by eliminating the burden of monthly payments. The following are the major reasons for preclosing the personal loan.

  • Interest Savings
  • Financial Freedom enables one to retain funds for different projects
  • Improved Credit Score
  • Cost-Efficiency
  • Reduced Debt Stress

Types of personal loan closures

  1. Regular personal loan closures

Regular personal loan closures follow the agreed-upon tenure with borrowers making fixed monthly payments until the entire loan amount is repaid. This foreclosure of a loan is the traditional way to pay the loan after the stipulated period is over.

  1. Personal loan pre-closure

Personal loan pre-closure involves settling the entire outstanding loan amount before the tenure ends. This can be done once the borrower pays a lump sum including the principal and interest accrued until the foreclosure of the loan date.

  1. Personal loan part-payment

Part-payment allows borrowers to make significant repayments at various intervals before the loan tenure is over. This pre-closure loan helps to minimize the interest accrual offering flexibility.

Understanding Pre-Closure Charges

Pre-closure charges are typically the fees that are imposed by lenders. These foreclosure loan charges are applicable only when borrowers repay a loan before the tenure. Know about the fee for the personal loan for closure in the table below.

Name of Financial Lender Loan Foreclosure fees
HDFC Bank 2% – 4%
Yes Bank 2% – 4%
CitiBank 4% + GST
Kotak Mahindra Bank 5% + Service Tax

Personal loan Pre-closure Process in 2024

The personal loan pre-closure process is an easy way to pay off the loan amount before the prescribed date. Certain steps help one to complete the pre-closure loan formalities beforehand.

Step 1: Visit the branch of your lender’s bank

Step 2: You should bring all necessary documents, such as ID proof and bank statements that indicate the final clearance of the last EMI, cheque, or demand draft with which you will pay the entire balance amount.

Step 3: Go through the formalities of a foreclosure loan and understand the process along with the charges

Step 4: Pay the balance amount through cheque or DD and collect the acknowledgment receipt offered to you by the bank

Documents Required for Closing the Personal Loan

One has to submit the following documents to complete the foreclosure of the loan easily.

  • Proof of address and identity: Passport, Aadhaar card, Voter ID card, etc
  • Loan statements stating the EMIs paid till date
  • Relevant loan documents
  • Cheque or demand draft

Part Payment of Personal Loan

What is part payment of a personal loan?

Part-payment of a personal loan refers to making a specific amount of repayment towards the outstanding loan amount before the loan tenure ends. Unlike other loan closures, in this case, one can make a partial settlement that helps reduce the overall interest burden. Unlike loan foreclosure, which involves paying off the entire outstanding amount in one go, part payment allows borrowers to make significant repayments at various intervals.

How to make a partial payment of your personal loan?

The following are the major steps that one can undertake to complete the personal loan preclosure within the stipulated time.

  • Reach out to your lender to understand their policies and procedures for part payments. Inquire about any applicable charges or penalties
  • Determine the current outstanding amount on your personal loan, ensuring accuracy and clarity on the partial payment you intend to make
  • Confirm the accepted modes of payment with your lender. Whether it’s through online banking, checks, or other methods, ensure compliance with their guidelines
  • Transfer the desired partial amount to the lender’s designated account using any of the payment methods like Debit Card, Credit card, Net Banking or Cheque

Tips for a Smooth Personal Loan Preclosure

The following tips should be followed to ensure smooth foreclosure of loans.

  • Plan your finances to facilitate a smooth personal loan foreclosure. Having an idea of the financial condition beforehand enables you to allocate funds for the loan closure smoothly
  • Before initiating the foreclosure of a loan, it is advisable to review the terms and conditions offered by the lender thoroughly. Check if there are any applicable charges or penalties ensures a transparent and cost-effective loan closure process
  • You should discuss the loan foreclosure process with your lender to facilitate the process smoothly. You can talk to the lender to solve all your queries to make an informed decision
  • Some loans may have prepayment charges or penalties. Confirm these details with your lender to avoid any hassle during the foreclosure process
  • Familiarise yourself with the loan foreclosure procedure outlined by your lender. Knowing the step-by-step process and required documentation streamlines the loan closure making it a hassle-free experience


  1. Can I repay my personal loan earlier than the loan tenure?

Ans. Yes, certain banks offer Preclosure of loan facilities earlier than the loan tenure.

  1. Will I be charged any fees for the foreclosure of my personal loan?

Ans. Yes, the preclosing charges to complete the personal loan formalities vary between 2 to 4%.

  1. How can I check the pre-closure charges for my personal loan?

Ans. You can find details on pre-closure charges in your loan agreement or contact the bank authorities.

  1. Can I make part payments towards my personal loan?

Ans. Yes, many lenders and banks permit partial prepayments the details of which can be confirmed by visiting the lender.

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