How to Close Your Personal Loan Early

Pay Off Personal Loan

Pay Off Personal Loan

Once the initial criteria have been fulfilled, it is relatively easy to secure any personal, home, or education loan. However, the challenge for many individuals is the repayment of these loans. Many people these days opt for personal loans to meet their immediate financial requirements. Once the loan has been sanctioned and loan terms and conditions have been carefully understood, the daunting task would be “how to close the personal loan early or on time?”.

There is an urge among few borrowers to pay these loans faster, even before the stipulated time. Even if you feel that you may only be able to repay it in due time, it is always beneficial to have a precise understanding of quick repayment strategies.

It may always come in handy when you are faced with a situation where you have to decide on pre-payment in the middle of your loan tenure or if you want to close your loan early.

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Personal Loans and Interest Rates!

A personal loan is an unsecured credit provided by a bank or a financial institution to fulfil your immediate, personal requirements, ranging from renovating your home, planning a wedding, or an urgent medical expenses.

Personal loans are often the easiest, quickest, and hassle-free way to finance your needs and indulgences at any given time. The benefit of this multi-purpose loan is that it doesn’t seek any collateral or security and is processed faster than other loans. Personal loans requires minimum documentation, and the approvals are often quick.

Once the financial institution is convinced of your ability to repay, the loans are disbursed within a few hours to a few days. Some criteria to avail this loan include your employment status, income level, credit history, and professional history. Based on your repayment capacity, you can choose the tenure.

An interest rate on personal loans might be higher than other loans. A good credit history or having a good relationship with the bank could get you a good deal on the interest rate.

Once you start the repayment process, there could come a time when you want to close the loan before the stipulated time.

Let us understand why paying off loans faster could benefit you and different approaches to take for  prepayment of personal loan.

Also Read: A Comprehensive Guide for Getting a Personal Loan in Bangalore!

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Why Should You Pay Off Personal Loans Faster?

Paying off personal loans faster, within the stipulated time, or before that will enhance your credit score by strengthening your financial situation and also increase your eligibility when you apply for a loan in Paying off your debt faster will also help reduce the total interest charges and therefore help you save more money than expected.

Pay Off Personal Loans Faster

The faster you pay of loan, the faster you are debt free. Once you close your loan, you would have some amount of money left to invest or spend on something else without worrying about being in debt.

Before you pay off your loans quickly, you need to factor in many things, such as a prepayment penalty or other changers that some lenders avail.

If there are no pre-payment charges or you save money despite the prepayment penalty, you could still clear the debt.

If you do not dip on your savings or emergency accounts and are in a financially strong position to pay off a sizeable chunk faster, lower your total interest charges, so paying off your loan early will be wise.

In Short, Here Are The Reasons Why Repaying off Debt Ahead of Schedule Could Be a Wise Decision

  • Saves money on the total interest rate.
  • Lower debt-to-income ratio.
  • Improved credit score.
  • Increases eligibility for future loans with better financing houses.
  • A better financial position.
  • Peace of mind.
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How To Close Personal Loans Early?

Analyse Your Debt and Other Obligations

Before paying off your loan, take a good look at your debts. Review your other loans, credit card balance, and other unpaid components. Understanding your financial capacity before paying off your personal loan debt is essential. If you have too many outstanding bills or loans or both, paying off the loan faster will not make sense and put you in financial trouble. Pay off the loan if the calculation leads to savings and a comfortable bank balance. Have a budget plan for your income, savings, and expenses, and then decide based on your income and obligations.

Pre-paying Your Loan

In between the loan term, you could get access to more funds and want to close the loan by prepaying the loan amount. Many banks have prepayment options – while some seek heavy prepayment penalties, others don’t. A prepayment penalty is levied by lenders when borrowers decide to pay off the loan amount before the stipulated repayment tenure. The ideal option would be to go for lenders that don’t levy this penalty. Pre-payment can bring down your monthly installment burden. If the lenders impose prepayment charges on personal loans , make sure you compare the penalty amount with the loan amount left to pay and understand if you are saving enough money by paying early despite the penalty. If you can save up enough on the total interest, you can opt for repayment.

Personal Loan Balance Transfer

If you pay a higher interest rate on your existing personal loan, consider changing the lender who can sanction the loan to an affordable interest rate. A lower interest rate would enable you to repay the loan quickly with the new lender.

Besides, you go for the new lender after closing the outstanding amount with the existing lender. Transferring a personal loan balance is possible if you have a good credit score. Make sure to factor in penalty charges in your existing bank and the processing fee charged by the new lender before going for this transfer.

Make An Extra Payment, why?

You can add an extra payment every year to close the loan faster. If your EMI is Rs 10,000, you could shell out an extra Rs 10,000 during the year. If you cannot pay the extra in one go, you could spread this payment evenly over the entire year. With this extra payment, you are paying Rs 10,833 every month, bringing you closer to paying off the loan early.

Pay Off A Chunk Of Your Loan Using Variable Pay Or Bonus

Many organization’s give bonuses or variable pay at the end of a financial year. This portion can be put aside to pay off the loan. This way, you will be able to make the payments faster with each passing year and eventually close it earlier than the stipulated time.

Prioritize Repaying Personal Loans

With an increasing number of people falling into a debt trap after taking multiple credits, it is important to prioritize repayment strategically. A personal loan attracts higher interest rates when compared to a car or home loan. The borrower must pay off the loan with a higher interest rate first. Prioritizing debt will ensure you pay off your loans quickly, especially personal loans which usually attract a higher interest rate.

Understand Lender Payment Programs

Some banks and other financial institutions have packages and programs to help borrowers repay their loans faster. You can look at those and understand different ways of repayment by assessing your current financial situation.

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Dos and Don’ts

Before jumping the gun on how to close your loans early, consider these points and then make an informed decision –

  • Examine Your Monthly Expenses

You should consider your fixed expenditure, such as rent, groceries, electricity, and so on, and be conscious of not using that amount of money. Also, understand if you have other loans, debt, etc.

The decision to close the personal loan faster should be made only after considering these factors and understanding whether you will be financially stable after making that repayment in one go.

  • Keep Adequate Savings Aside

Do not take money out of savings to pay off personal loans unless necessary. Make sure that you have emergency funds kept aside while making this repayment.

A safety net is always necessary, and it does not make sense to close the loan and have no money in your bank account. If you have earmarked money for specific long-term goals like children’s education, marriage try to avoid dipping into them.

  • Understand Pre-payment Terms

Some banks levy pre-payment charges from the lender for paying the loan before the scheduled time, while others don’t. Understand the fine print of these charges.

Calculate whether this amount is higher than the interest you will be paying in the remaining months. If it is lower and saves money, close the loan.

  • Don’t Rob Your Retirement Funds

To pay off loans early, do not touch your retirement funds. You may have kept it for the long run and maybe accrued interest. Breaking that account to pay off the loan is not advisable.

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Additional Tips

  • If you have an existing home loan and need additional money, it is best to go for a top-up loan against the existing loan instead of a personal loan. Due to a relatively lower interest rate and flexible loan tenure, a top-up loan is a better option than a personal loan. The lower interest rate will also ensure timely repayment or quick repayment.
  • Multiple debts may not be a good idea. It is ideal to opt for a debt consolidation plan where all your loans – personal, home, and even credit card debts. They can be clubbed into one unit. This will ensure a single pay-out, and the interest rates in a debt consolidation plan will be much lower than paying for individual loans. This will help you manage your finances and pay off your debts early.

Always Remember

  • Understand the pre-payment terms of your lender
  • Save as much as possible from your income to make extra loan payments whenever possible.
  • Use bonuses and variable pay to pay off the EMI
  • Pay off personal loans before other loans, as personal loans come with higher interest rates than home or car loans.
  • Understand your monthly expenses and other obligations before the early repayment of your loan
  • Make sure not to dip into your savings and emergency funds to pay off your loan early.
  • Do not overthink it. If you are in a hurry to close that loan quickly, understand the terms, and make the decision.

Debt Free Process

Prepayment Charges of Popular Banks

To make your work a little easier, here are some prepayment charges of few popular banks-

Bank Name/ Lender Prepayment Charges Prepayment Period
State Bank of India (SBI)
  • SBI Quick Personal Loan – 3% on prepaid amount.
  • SBI Xpress Credit- 3% on prepaid card.
  • Kavach Personal Loan- NIL
  • SBI Pension Loan- 3% on prepaid amount.
Refer to Banks Terms and Conditions.


  • 13-24 months of closure- 4% of principal due.
  • 25-36 months of closure- 3% of principal due.
  • After 36 months of closure- 2% of principle due.
  • Prepayments are not permitted in part or in full before 12 loan EMI have been paid.
  • Part payments can be done for 25% of principal amount due, only during a financial year and twice in the loan term.

IDFC First Bank

5% on principal outstanding(Prepayment is possible after payment of at least 12 EMIs)
  • Foreclosure to be made from customers own funds.
  • Foreclosure/Prepayment of the loan is possible anytime during the loan tenure after payment of 6 or more EMIs

Yes Bank

  • 13-24 months of closure- 4% of principal due.(20% principal due can be paid)
  • 25-36 months of closure- 3% of principal due.(20% principal due can be paid)
  • 37-48 months of closure- 2% of principal due.(25% principal due can be paid)
  • 48 months of closure-no foreclosure charges (25% or principal due can be prepaid)
Loan can be foreclosed only after payment of 12 loan EMIs

Axis Bank

2% -5% of the outstanding loan amount(Depending on the time of the loan taken) Up to 5% of the principal outstanding.

Kotak Mahindra Bank

  • Rs 500, & GST per instance for part prepayment.
  • Part prepayment allowed up to 20% every year, after a period of 12 months.
  • Prepayment can only be done after 12 months starting from the date of the first EMI payment

Induslnd Bank

4% of the outstanding principal
  • Salaried individuals can can prepay loan after 12 EMIs
  • Self employed borrower can pre-pay after 6 EMIs

South Indian Bank

  • 4% – If the loan is prepaid in part or full within 1 year of disbursement.
  • 2%- If the loan is prepaid in part or full after 1 year.
Loan cannot be prepaid before the end of 1 year starting from loan disbursal date

Also Read: Simple Ways to Pay Off Your Personal Loan Quickly

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The objective of early repayment of your loan is to reduce your debt obligation, save money in the long run and improve your overall financial standing. Paying off your loans faster will boost your credit score and will most likely improve your chances of securing another loan with a lower interest rate. But before you close the loan, analyse your income and expenditure, examine your other obligations and debts and read the fine print on pre-payment penalties and other fees charged by lenders.

Early loan closure may be something other than something a borrower would consider when taking a loan. However, since the future is unpredictable, it is always wise to understand all the different aspects and weigh the pros and cons of pre-payment ahead of time so that you are aware when left with a choice to close the loan quickly. Make an informed decision based on the above mentioned points before paying off your debt early.

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