Neha Enterprises



Pre-payment or foreclosure occurs when a debt is repaid early. Loan foreclosure carries penalties based on the amount of EMIs paid. The penalty increases with EMI servicing duration. Foreclosure fees vary from 2% to 4% of the unpaid balance.

Individual borrowers who take up variable rate term loans for non-business reasons are exempt from foreclosure/prepayment penalties under RBI rules.

The minimum EMI servicing time for foreclosure is 6M to 12M depending on the lender’s regulations. Many lenders don’t charge if the loan is paid off.

Existing loans may be secured or unsecured, with a greater rate of return and a shorter term. It is usually prudent to take over high-cost loans and replace them with low-cost loans. As a result of this consolidation, future outflows are significantly reduced when the ROI is lower and the tenure is longer. Oftentimes, pre-payment penalties apply when a loan is repaid early. One must weigh the possibility of refinancing the loan, taking into account the total cost of completing the existing loan and obtaining the new loan.

If the borrower has adequate cash but not enough to prepay the whole loan amount, the option of partial payment may be explored. This payment reduces EMIs and the total amount of interest paid and to be paid. This is a simple but effective method of reducing interest payments throughout the loan’s term.

Lenders permit part-payments of up to 20% to 30% of the loan amount twice a year, after which they may assess part-payment fees equivalent to pre-payment fees.

When the part-payment option is used on a consistent basis, it helps reduce EMIs, total interest paid, and accelerates loan repayment.