Financial institutions go all out of their way to woo potential borrowers. They advertise their rate of interest, and fees, and offer a higher amount i.e., 2 crore home loan EMI or 5 crore home loan EMI and various other fees to attract the borrowers to their loan deals and offerings. As a borrower, you are also continuously looking out to get some credit for various reasons. Credit cards, personal loans, auto loans, education loans, home loans, and other credit options are available to you as a borrower to meet your financial requirements.
There are distinct options to make the payment of the loan as well. While most loans require you to make EMI repayment monthly, gold loans provide a one-time repayment option as well. Credit cards endow you with a revolving credit option so that you can use it whenever you require and repay without the interest constituent within fifty days. So, you as a borrower can conveniently make repayment of your loan without fretting about defaults or late repayments. So, the late repayment option is a crucial parameter to consider when availing a loan of any type, may it be a home loan.
What are the crucial parameters you must factor in linked with loan repayment options? What must you look out for while looking to repay the home loan?
Foreclosure fees –
It is a vital aspect you must confirm with the bank before you take up a home loan. According to the latest guidelines from the Reserve Bank of India, financial institutions cannot levy any foreclosure fees for loans with a floating interest rate. So, it is necessary to check out the rate of interest of a loan before opting for it. Personal loans are usually fixed-interest rate loans while home loans and a loan against credit cards are floating interest rates. Foreclosure fees range anywhere between 2 per cent and 5 per cent of the overall outstanding amount.
Also Check: 5 Crore Home Loan EMI
Lien on security or collateral –
Most financial institutions set a lien upon the collateral or security you submit for the credit option. For instance, in an auto loan, the bought auto is hypothecated to the lender until loan proceeds are paid back. Such liens are placed upon the security to protect them against losses from bad loans. Many are unaware that a lien is not the legal right of the banker to sell off the collateral property of the borrower in the occasion of non-repayment of loan proceeds. Such liens are displayed in credit reports as well. So, once you make repayment of the loan, make sure that the lien gets removed from security or collateral. Also, note that to get a NOC or no objection certificate from the lender for the removal of the lien, you have thorough authority to sell off the asset.
Effect on the credit profile and score –
Lenders make use of your credit profile and score to decide your credibility. A low score shows a red flag to the lenders. Repaying the loan timely is an excellent beginning to ameliorating your score. This is why it is simpler to set standing instruction or ECS for your monthly repayments of EMI. This ensures your loan payments are done timely. Also, when making additional repayments to your loan, your score would improve too. Failing to make the repayment of the loan on time, negatively impact your score and even impact your potential to get the loan over time in the future.
Procuring original documents –
When opting for the loan, you must submit a few crucial documents like the home sale deed, securities, bonds, asset documents, etc. Once you pay the loan, please keep in mind that you must procure the original documents. Also, you must get the recent encumbrance certificate mentioning the legal rights and loan closure transferred in your name.
Available mode for repaying the loan –
Do you know “what are the choices permitted by banks to make loan repayment?” Check that “Do they accept the NACH mandate or want cash payments?” “Can you conduct repayment conveniently via online modes or should you approach a branch monthly to make repayment?”. With digitisation being accepted worldwide, convenient repayment options must be available to service the loan options comfortably.
Is making early loan repayments an excellent idea?
Loans are taken up to meet big-ticket expenditures or to conduct quick repayments. Getting the loan necessarily doesn’t infer that you don’t have the required funds to repay the loan timely. So, you can make repayment of the loan in totality on time, or you can make the payments partially now and then and close the loan by the due date.
- Repaying your loan previously would lower great expenses in reference to interest and various other fees.
- It endows a boost to your score owing to your timely repayments.
- More funds to reinvest in the business or invest in various other ventures.
- Chances of availing better loans are way higher when you pay your loan quickly.
- Asset appreciation results in better returns.
Ending note –
A loan tends to come across as an investment when you repay the same in full by the stipulated repayment time period. Education loans and home loans even provide additional tax advantages on interest constituents. However, failing to make repayment of the loan timely and defaulting on repayments can be a dangerous affair to your financial stability. Your score can be impacted negatively and hinder your chances of availing a low rate of interest credit option in the upcoming times. So, consider repaying your loan as soon as possible than the repayment tenure of the loan and avail higher benefits.
Frequently asked questions linked with loan repayment? Here are some of the crucial facts you must consider –
The fixed interest rate or floating interest rate? Which option is better?
A floating interest rate permits you to simply pre-close your credit without any penalty fees. So, it is best if you are looking to make your loan repayment on time.
Why is a financial institution not permitting you to pre-close your personal loan that you availed five months back?
It basically is dependent on the terms of the loan. Most financial institutions do not permit you to pre-close the loan before at least twelve EMIs are paid. So, ensure to check with the financial institution on the procedure of pre-closure.