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What Is Personal Loan Foreclosure?

3 min read Feb 28, 2024

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Personal Loan foreclosure could be one of the things on your mind if you obtained a Personal Loan in an emergency but now find yourself in a more stable financial position with sufficient savings. Loans can be a liability, especially when you have those funds saved up in your account, and you might want to close them for good. But there are some considerations associated with settling your Personal Loan early.

What is Personal Loan foreclosure?

Personal Loan foreclosure refers to the process of paying off a Personal Loan before the scheduled loan tenure ends. It allows you to settle your debt early, typically resulting in saving you interest costs and eliminating the burden of future loan obligations. You can improve your financial flexibility and credit score by foreclosing a Personal Loan.

Types of Personal Loan closures


• Regular Personal Loan closures

The most common method is to make regular monthly payments until the end of the pre-determined loan tenure. The loan is considered closed when you pay your last instalment.

• Personal Loan pre-closure

Pre-closure means repaying the entire outstanding loan amount before the decided tenure. However, lenders may include additional Personal Loan pre-closure charges, reflecting the interest income they lose due to early repayment.

• Personal Loan part-payment

Part-payment allows you to make varied lumpsum payments towards the outstanding loan amount, which reduces the principal. While this does not fully close your loan, it can lower your monthly EMIs and interest payments.

Payment of foreclosure charges

When you decide to foreclose a Personal Loan, you are likely to be charged foreclosure fees by the lender in addition to paying off the balance amount. These charges are to compensate for the interest lost when you opt for early repayment, and they may vary for different lenders. Axis Bank imposes foreclosure charges for Personal Loan depending on the loan term.

  • Loans under 36 months: You'll have to pay 3% of the remaining loan balance, plus GST.
  • Loans over 36 months: The fee drops slightly to 2% of the remaining balance, plus GST.

Before committing to Personal Loan foreclosure, it's important to consider these charges. It will help you make an informed decision.

Documents required for Personal Loan foreclosure

You need to notify the bank in writing where you have a Personal Loan Account. Subsequently, provide the required documents, including Personal Loan details and accepted identity proofs like a PAN card or Aadhar card. Additionally, you might need to submit bank statements as evidence of the last EMI payment. Once submitted, the bank conducts thorough document verification, calculating the pending loan amount considering paid EMIs, interest charges, taxes, and applicable foreclosure charges.

Documents you need to collect after Personal Loan foreclosure

Once you make the payment and clear all your outstanding dues, your lender will initiate the foreclosure formalities. The instructions around monthly debits will be revoked, and all your original documents will be returned to you. Additionally, you need to make sure you get the below set of documents:

  • Acknowledgement letter and payment receipt
  • No dues certificate
  • No objection certificate (NOC)
  • Personal Loan closure certificate

NOC for foreclosure

No objection certificate (NOC) is a legal document issued to you by your lender after you have paid off the loan amount and the loan account is closed. It states that you have fulfilled all their terms under the loan agreement and have no outstanding dues. In foreclosure, an NOC is important to remove the lender's lien on the property, which allows you to sell or transfer ownership freely.

How to foreclose your Personal Loan?


  • You need to visit your nearest Axis Bank branch, as it cannot be done online.
  • Fill out and submit the application form along with the required documents.
  • The bank verifies documents and calculates the outstanding loan amount with applicable taxes and foreclosure charges for Personal Loan.
  • Receive and review the foreclosure statement with details of the amount and date of repayment.
  • Clear the dues through a cheque, demand draft, or online transfer.
  • Upon receiving payment, the bank initiates the process. Once complete, you'll receive the closure documents.

Summing Up

Understanding the details of Personal Loan foreclosure is important if you're aiming to manage your finances effectively. Being aware of associated Personal Loan pre-closure charges and having the required documents in order ensures a smooth closure process. With Axis Bank, you can get a Personal Loan of up to ₹40 lakh in financially uncertain times and opt for foreclosure once you attain financial stability.

Also Read: Overview, benefits & charges of Personal Loan prepayment

FAQs

Could there be a reason why my pre-closure was halted by the lender?

It may happen based on the terms and conditions of the loan agreement. Consult with your lender to understand any restrictions or reasons for halting the pre-closure process.

Are the foreclosure charges applicable to all financial lenders?

Foreclosure charges vary among lenders, so it is crucial to review the T&Cs provided by your lender to understand the applicable charges.

Are there charges for Personal Loan part-payments?

Yes, lenders may impose charges for part-payments. It is important to check your loan agreement to understand these charges.

Which will be better for my credit score? Making a foreclosure or repaying the loan over the tenure?

Both options can have a positive impact on your credit score. A well-managed closure, whether through regular payments or pre-closure, showcases responsible financial behaviour and contributes positively to your credit history.

What are the pre-closure charges on a Personal Loan?

Pre-closure charges are fees charged by lenders if you wish to repay the entire outstanding loan amount before the actual tenure.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.