Personal Loan

Pre-Closing the Personal is it a Good Idea?


Personal loans have some of the highest rates, excluding charges on credit card balances. Loans attract a premium because they are often unsecured, with rates ranging from 15% to more than 20%. On the other hand, a personal loan is standard in the nation since it helps those in urgent need of money. 

Loans, which are often used to purchase people’s durables, weddings, medical treatment, or even vacations, are provided by most banks, with minor gaps in fees. But, if a personal loan could be prepaid, people would get many perks. But first, let us define the “pre-closure of debts.”

What is Pre Closure of a Loan?

The total pay of the debt in a single instalment before the due date is referred to as a pre-closure. As a result, rather than still paying many EMIs, people pay the debt amount all at once.

This saves people a lot of interest and EMIs they would have had to pay over time. Before they decide on a loan, they must first get consent from the lender. In some instances, lenders may assess a pre-closure penalty to cover the lost interest rates the firm would have otherwise collected.

Process Of Pre Closing Personal Loan 

Pre-closing a personal loan might not be a complex task. Some of the basic actions people may take when pre-closing a personal loan are as follows:

  • Inform the lender that they want to pre-close on the debt.
  • Submit a formal pre-closure form through email or in person at the local branch. Relevant papers, such as ID proof and loan documents, should also be submitted.
  • Following submission, one would be asked to pay for the pre-closure of their personal loan account.
  • The bank will send them an indication letter when the pre-closure has been completed.
  • In a few days, they will get the final pre-closing papers.

Perks of Pre-Closing Personal Loans

  • Get out of debt faster

People take out a loan to cover some vital bills – now, it’s crucial to pay them back. Yet, the loan might create financial hardship if not aptly handled. Bank loan EMIs could eat into monthly savings. This is why, if one has extra money, it is often suggested that one pay off the personal loan in full. They may be charged a prepaid fee as they repay the loan.

  • Boost the credit score:

People reduce their money load when they pay the total or partial loan. This improves their credit score since existing debts are closely related to their credit score. The credit score improves when the existing loan balance is lowered or paid off by a partial or complete pre-payment. This increases the chances of obtaining another loan.

  • Pre-payment results in lower rate outflow:

The holding period is one of the most vital things to keep in mind regarding loan pre-payment. This is when the lender doesn’t allow the client to make any instalments, whole or partial, towards the loan amount. Yet, after the holding period, when one has some spare cash, they can prepay the loan in whole or in parts.

  • Debt can be reduced through partial pre-payments:

Partial payments can reduce the debt load. When people pay off a portion of the debt loan balance, they reduce the debt load. This also reduces the amount of charge that is charged on the overall debt amount. But, if they want to pay off the debt early, they must aim to do it over the first few years.

Is it Reasonable to Make Pre Payments on a Personal Loan?

The lending rate is always lower than a user’s borrowing cost.

The methods for online loans and offline loans are slightly different. When it comes to online loans, the amount owed is shown in the online account, and people will get an indication as soon as the dues are paid. A NOC (No Objection Certificate) and a loan closure certificate are the last papers vital to complete the pre-closing a personal loan.

Yet, suppose users are applying for an offline loan. In that case, they must have all the papers vital for ID validation, such as official ID proof, loan account details, bank records showing the most recently cleared EMI, and a check or demand draft for the debt loan amount.

The bank may need extra papers that they believe are vital for the process to be completed. Once all of the papers have been provided by the borrower and approved by the lender, the bank will issue a letter admitting the pre-closure, which must be obtained and kept for future transactions.

When the process is finished, the bank would either post or mail a paper saying that the loan has been completed.

For example, people may get a mortgage at a 15% rate, but the annual savings would not be over 9% to 10%. At about the same period, they must repay 15% of the rates on the debt loan balance. If people choose to repay, the loan balance may be returned, saving an additional 5% to 6% rates yearly.


It is time to obtain fast money to satisfy that urgent financial demands, personal loans are often the first choice people consider. Personal loans are incredibly handy, particularly in an emergency, and their interest rates are often greater than any other kind of secured but unsecured loan.

No matter how practical and easy asking for a house loan seems, there are always certain concerns about borrowing. When it comes to personal loans, borrowers’ most common concerns are about the service fees, interest rates, and other expenses that may be imposed. Other factors that make people sceptical include pre-closure and personal loan payments.

Once the borrower has finished the pre-closure process, the lender will produce a credit report that reflects one’s financial state and stability. Lenders use this credit score to measure credit and set up loan conditions and terms. 

Following the pre-closure, lenders will be ordered to update the credit file to CIBIL, where all credit data and reports are kept. This is an essential step in completing the process.

Visit Piramal Finance to learn more about personal loans and explore different products and services.