Friday, October 7, 2022
HomeFinanceAre you looking to repay a loan? First, consider the following facts

Are you looking to repay a loan? First, consider the following facts

Banks and NBFCs go to great lengths to entice potential borrowers. To entice customers to their loan services, they market their interest rates, fees, and other costs. Borrowers, too, are often looking for loans for a variety of reasons. Borrowers can use personal loans, credit cards, home loans, vehicle loans, education loans, and a variety of other lending products to fulfil their financial needs.

A loan can be repaid in a variety of ways. Though most loans have a monthly EMI, gold loans have a one-time payment option. Credit cards provide you with revolving credit that you can use anytime you want and pay back in 50 days, interest-free. As a result, borrowers can easily repay their loans without fear of late payments or defaults.

Factors before repaying a loan

Foreclosure Charges:

This is a crucial point to double-check with your bank before applying for a loan. According to the RBI’s most recent guidelines, banks cannot charge foreclosure fees on loans with a floating rate of interest. So, before taking out a loan, make sure to verify the interest rate; personal loans have a fixed rate of interest, whereas home loans and credit card loans have a floating rate of interest. Charges for foreclosure might range from 2% to 5% of the total outstanding debt. When you want to pre-close a loan early in its term, it might be difficult.

Effect on credit score:

Credit scores are used by lenders to assess an applicant’s creditworthiness. For lenders, a poor credit score is a red flag. Making on-time loan payments is a fantastic way to improve your credit score. As a result, setting up an ECS or standing instruction for your monthly EMI payments is much easier. This assures that you pay back your loan on schedule. Your credit score will rise as well if you make additional payments on your loan account. Failure to repay a loan on time will lower your credit score and make it more difficult to obtain loans in the future.

Hold on property:

The collateral you supply for the loan is usually encumbered by a lien. In a car loan, for example, the car is hypothecated to the lender until the loan is paid off. To safeguard against losses from faulty loans, these liens are placed on the collateral. Many individuals are unaware that a lien is a banker’s (or any creditor’s) legal right to sell the borrower’s collateral property if the loan is not repaid. These liens will also appear on your credit record. As a result, once you’ve paid off the loan, make sure the lien is removed from the collateral. Remember to secure your lender’s NOC (No Objection Certificate) to remove the lien and provide you full authority to sell the item.

Loan repayment options:

What options does the bank offer for repaying a loan? Is a NACH mandate acceptable, or do they prefer cash payments? Is it possible to make the payment more conveniently through online means, or do you need to go to the branch every month to pay? With our hectic schedules, suitable repayment choices should be provided so that we may conveniently service the debt.

Obtaining genuine documents:

You would have submitted a few original documents when applying for the loan, such as the house sale deed, asset paperwork, securities and bonds, and so on. Remember to collect the original documentation from your lender once you’ve paid off the debt. Obtain a copy of the most recent ‘Encumbrance Certificate,’ which details the loan’s conclusion and legal rights transferred to your name. This will be critical in asserting your ownership of the item, property, or collateral.

Is It A Good Idea To Pay Off Your Loans Early?

We take out loans to cover large bills or make a speedy payments. Taking out a loan does not automatically imply that you will be unable to repay it on time. As a result, you have the option of repaying the loan in full on time or making periodic partial payments and closing the loan far before the due date.

  • Paying off your debt sooner will save you a lot of money in terms of interest and other fees.
  • It improves your credit score by demonstrating that you have a good repayment history with your lender.
  • More money to put back into your company or to put into other endeavours.
  • When you pay off your loan sooner, you have a better chance of securing a better loan.
  • Better returns result from asset appreciation.

Conclusion

When you repay a loan in full before the due date, it becomes an investment. You may be eligible for additional tax savings on the interest component of home and education loans. Failure to repay the loan on time and defaulting on payments, on the other hand, might be detrimental to your financial health. Your credit score may suffer as a result, making it more difficult to obtain low-interest loans in the future. Consider returning your loan sooner than the loan term to maximise your rewards.

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