Q. What is prepayment charges in Loan?
Prepayment is an option provided by financial institutions allowing customers to pay their loan prior to the expiry of the loan’s due date.
Pros of Prepayment of loan:-
- Borrower become debt-free faster
- Prepayment loan reduce interest outflow
- Partial Prepayments Can Lower borrower Debts
- Prepayment improve borrower Credit Score
Cons of Prepayment of Loan:- When borrower paying off the debt before tenure ends can cause the lender to incur a loss. To cover the loss, the bank often charges a penalty for the prepayment (part and full), known as prepayment charges. The Prepayment charge may vary considerably from bank to bank. Some bank levied higher prepayment charge while some other bank don’t charge any prepayment charge.
Q. Is it good to foreclose loan?
You can definitely consider foreclosing your loan as your credit score improves and you are also able to save money. However, different banks may charge a foreclosing fee, so make sure you pay the amount only when you feel the time is suitable to do so. Therefore while you are approaching any financial institution for a loan. Firstly take information about the foreclosure charge/prepayment charges.