What are Some Tricks to Foreclose a Personal Loan Early?

You can easily qualify for a Personal Loan by meeting the lender’s eligibility requirements and providing the necessary documents. However, most borrowers face a real challenge when it comes to repayment. Staying indebted for a long time and managing a budget to accommodate loan EMIs is a hassle most people want to get rid of. That is when the concept of loan foreclosure comes to the forefront. A thorough understanding of the systematic process can help you plan a prepayment strategy efficiently and repay your loan faster. Here are a few tricks that help.

Benefits of Loan Foreclosure

Paying off a loan on time, or before that, will significantly enhance your credit history. It strengthens your financial situation and boosts your eligibility for future loan applications. The earlier you repay the loan, the faster you become debt-free. You can invest the saved money somewhere else to get better returns. Here are a few benefits of foreclosing a Personal Loan before time:

• Saves money on the interest outgo
• Reduces your debt-to-income (DTI) ratio
• Improves your credit score
• Increases your eligibility for future loans 
• Places you in a better financial position
• Gives you peace of mind by making you debt-free

Tricks to Close a Personal Loan Early

If you are considering loan foreclosure, here are a few tricks to use: 

• Analyse Your DTI Ratio

Before paying off a loan, look at your current debts, including loans, credit cards, and other unpaid obligations. Understand your financial conditions before prepaying a loan. If you have multiple outstanding loans and bills, prepayment will make little sense and even place you in financial trouble. Prepay the loan only if it leads to savings and does not consume your bank balance. Plan your income, expenses, and savings before prepaying.

• Make Extra Payments

Sometimes, during the loan tenure, you may get more funds that you can use to make an extra EMI payment. Many loan companies offer prepayment options with or without prepayment charges. Therefore, before signing a loan agreement, check the lender's prepayment charges and ensure they are manageable. Making extra payments during the tenure will reduce your loan burden. However, ensure the prepayment charges with the new loan apps do not exceed your savings. If the prepayment allows you to save significantly on the loan cost, you can go for the option.

• Personal Loan Balance Transfer

If your current lenders have a high interest rate on your Loan, consider switching to a new loan plan with an affordable interest rate. A lower interest rate with the new lender will save your costs and let you repay the loan quickly. 

• Prioritise Loan Repayment

Taking multiple loans simultaneously often leads to a never-ending debt trap, so prioritising loan repayment is crucial. Since Personal Loans are unsecured, they attract higher interest rates than Home Loans, car loans, and other secured loans. Prioritise paying higher interest rate loans first, then move on to the lower ones.

Understand Lender Prepayment Programs

Some lending institutions offer prepayment programs and packages to help borrowers prepay their loans before the term ends. You can enquire about such plans and decide on the final loan foreclosure based on your current financial situation.

Do’s and Don’ts of Loan Foreclosure

Before approaching your lender for a loan prepayment, consider these do’s and don’ts when making your final decision:

Do’s:

• Examine Your Obligations

Consider your fixed monthly expenses like rent, utilities, groceries, school fees, insurance premiums, current loan EMIs, etc. You should prepay a Personal Loan early only after ensuring financial stability afterwards.

• Understand the Prepayment Terms

Some lending companies levy hefty prepayment charges for foreclosing the loan before the term ends. Read the loan document's fine print carefully and enquire about these charges. Ensure the money you save with loan prepayment exceeds the foreclosure fees. If the charges are low and you save money, foreclose the loan.

• Consolidate Debt

Staying in multiple debts is not a good idea. You may opt for a personal loan for debt consolidation plan to merge all your home, personal, auto, and credit card debts into one. It ensures a single monthly payout with reduced interest rates and easier repayment terms. As a result, you can repay your debt early while efficiently managing your finances.

Don’ts:

• Do Not Use Your Savings

Avoid using money from your savings to pre-pay the loan. Build an emergency fund first and then consider loan foreclosure. A safety net is always essential, and prepaying the loan with no money left in the bank account makes no sense. If you have assigned enough money to achieve financial goals like a child's education, marriage, etc., you can use the surplus funds to pre-pay the loan.

• Do Not Rob Your Retirement Savings

Do not touch your retirement savings to pay off the loan early. You must have saved it for long and accumulated interest. Using those funds to pre-repay the loan is not the right decision.

Always Remember These Points 

Before deciding to pre-pay a loan, always remember these points:

• Understand the lender’s repayment terms and charges.
• Earn extra income, create a budget, reduce expenses, and save as much as possible to make additional EMI payments whenever possible.
• Utilise variable payments and bonuses to pay an extra EMI.
• Concentrate on repaying high-interest loans like Personal Loans before others to save money on the interest outgo.
• Create a budget and understand your monthly obligations before prepaying the loan.
• Never prepay the loan with your emergency funds or retirement savings. 

The ultimate goal of loan foreclosure is to save money in the long run by reducing your debt obligation. Paying off a loan faster improves your financial standing and boosts your credit score in the long term, improving your chances of getting better loan deals in the future. However, analyse your income, expenses, and the lender's prepayment charges before closing the loan. Therefore, create a budget and read the fine print carefully to understand the conditions and make an informed decision. Hero FinCorp is one of the most trusted new loan apps offering the best terms and conditions for borrowing and prepayment.

Disclaimer: This content is sponsored and does not reflect the views or opinions of Ground Report. No journalist is involved in creating sponsored material and it does not imply any endorsement by the editorial team. Ground Report Digital LLP. takes no responsibility for the content that appears in sponsored articles and the consequences thereof, directly, indirectly or in any manner. Viewer discretion is advised.

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