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Things to Keep in Mind before Foreclosure of Personal Loan

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Quick and accessible Personal Loans can be of great help when people face an emergency that requires additional funds, such as medical needs, home improvements, weddings, etc. Borrowers are bound to pay back loan amounts through EMIs, and if the repayment is well planned, it does not hurt. New-age non-banking financial companies (NBFCs) like Poonawalla Fincorp provide generous and convenient loan tenures for their partners, which prove to be beneficial in the long run.

But is there another way to repay your loans?  No matter how beneficial or convenient a repayment tenure looks to you, try and prepay your loan when you have extra funds. This is called foreclosure of a loan, a completely legal process wherein borrowers can pay off the entire loan amount in one go, greatly reducing their interest liability, and closing the loan account in one swoop.

Most NBFCs allow you to prepay a Personal Loan by paying off the remaining balance before the final six instalments. However, there is a relatively nominal prepayment penalty for doing so. From using a Personal Loan eligibility calculator to understanding the loan application process, here are a few things you should know before the foreclosure of a Personal Loan.

1. Check Your Loan Eligibility

You can use a Personal Loan eligibility calculator to check your loan eligibility to help you know whether you qualify for a Personal Loan and how much you may be able to borrow.

2. Understand the Personal Loan Application Process

The Personal Loan application process can vary according to the lending institution. Therefore, before beginning, you must understand the process to stay prepared with all the necessary documentation.

3. Be Prepared for a Credit Check

Most lending institutions will perform a credit check when you apply for a Personal Loan to assess your creditworthiness and determine whether you are a good candidate for a loan.

4. Know the Repayment Terms

Before taking out a Personal Loan, ensure you understand the repayment terms such as the length of the loan, the interest rate, and any fees or penalties associated with late or missed payments.

5. Consider Other Options

Other options are available if you’re having trouble qualifying for a Personal Loan. For example, you can consider a secured loan using collateral such as your home or car. You may also explore alternatives such as credit counselling or debt consolidation.

Facts about Foreclosure of Personal Loan

○ Eligibility

When you are ready to apply for a Personal Loan, one of the first things you will need to determine is your eligibility. There are several factors that lending institutions will look at when considering your application, including your credit score, employment history, and income. However, one factor that is often overlooked is your debt-to-income ratio.

Your debt-to-income ratio measures how much debt you have relative to your income. Creditors use this ratio to determine whether you can afford the monthly payments on a Personal Loan. If your debt-to-income ratio is too high, getting approved for a loan may be difficult.

One way to improve your chances of getting approved for a Personal Loan is to use a Personal Loan eligibility calculator. This tool will help you determine your debt-to-income ratio and see if you meet the minimum requirements for a Personal Loan.

○ Employment History

Another factor that can impact your loan application is your employment history. Before approving loans, institutions like to see consistent work history, so if you have been unemployed for a long period or have had frequent job changes, getting approved for a loan may take some work. You may also need help getting a Personal Loan if you are self-employed. You may need to show at least two years of tax returns to verify your income.

If you have not been self-employed for at least two years, you may have difficulty getting approval. 

Personal Loans can be a great way to consolidate debt or finance a large purchase. However, you must ensure you are eligible for a loan before applying. 

Factors that Affect the Chances of Loan Approval

  1. The most crucial factor is the borrower’s credit score. A high credit score means a borrower has good credit history and is less likely to default on the loan.
  2. Down payment is another significant factor because it shows a borrower has adequate financial resources.
  3. The type of loan is also necessary because it determines the interest rate and terms of the loan.
  4. Lastly, any borrower’s income is significant because it determines whether they can afford the monthly payments.

Can there be any risks? 

Foreclosing a Personal Loan comes with no involved risk: it won’t damage your credit score, nor will it make it difficult obtaining future loans, nor invite any legal action of any kind. The only thing borrowers should do is inform their financial institution and discuss all available options. A Personal Loan eligibility calculator can also help calculate foreclosure charges and what effect it’ll have on your loan.