Preclosure of Loan: Procedure, Fees, How to Apply, etc.  

We take loans many a time when we have financial need of I, it can be to purchase a house, car, or anything of that sort.

Something we can unexpectedly get huge some of money that can be through inheritance, policy maturity, etc. this money can be used to foreclose your loan which will save you interest payments and much more.

Loan preclosure is a financial strategy that allows borrowers to pay off their loans before the scheduled repayment period ends.

This provides individuals with the opportunity to gain financial freedom by reducing their debt burden and achieving long-term savings.

In this article, we will discuss into the world of loan preclosure, its advantages, the steps that you can follow, associated fees, etc

But first let’s find out the benefits of foreclosure

Preclosure of Loan Procedure, Fees, How to Apply, etc.

Benefits of Preclosure of Loan

Preclosure of loans can come up with various benefits which are as follows-

  • Preclosing a loan allows borrowers to save on interest payments over the long term. By paying off the loan earlier, borrowers can reduce the total interest accrued, leading to significant savings.
  • Preclosure enables borrowers to become debt-free faster, allowing them to achieve financial freedom and reduce financial stress. It eliminates the burden of monthly loan payments, freeing up funds for other financial goals.
  • Preclosure can lead to reduced monthly installments, as borrowers no longer need to make regular loan payments. This can provide immediate relief and increase disposable income for other expenses or investments.
  • Paying off a loan through preclosure demonstrates responsible financial behavior, which can positively impact credit scores. A good credit score opens doors to better financial opportunities, such as lower interest rates on future loans.
  • By preclosing a loan, borrowers gain flexibility in their financial planning. They can redirect funds towards other goals, such as saving for a down payment on a house or investing in their education, ultimately improving their overall financial well-being.

Some Banks Preclosure Fees

The following are the some of the bank’s preclosure fee which will be charged on the preclosure amount-

Bank NamePreclosure Fees
State Bank of IndiaNil for floating rate loans, up to 3% for fixed-rate loans
HDFC BankUp to 2% of the outstanding principal amount
ICICI BankUp to 5% of the principal outstanding
Axis BankUp to 2% of the principal outstanding
Punjab National BankNil for floating rate loans, up to 2% for fixed-rate loans
Bank of BarodaNil for floating rate loans, up to 4% for fixed-rate loans
Canara BankNil for floating rate loans, up to 5% for fixed-rate loans
Kotak Mahindra BankUp to 5% of the principal outstanding
IDBI BankNil for floating rate loans, up to 2% for fixed-rate loans
Union Bank of IndiaUp to 2% of the outstanding principal amount

How to do Pre-Closure of Loan?

You can follow these steps to do a pre-closure of the loan-

  • Visit the bank where your Loan is active and ask the bank representative for foreclosure of the loan account
  • Carry the necessary documents with yourself including photocopies of the same and submitting it to the representative
  • Now, you’ll be given a letter which will be a letter for foreclosure, if you are completely closing the account, you’ll have to submit the cheque but if you are taking up new loan by closing this one from another bank then you’ll have to initiate a transfer process
  • After that, your request and payment from cheque will be process and upon completion of the process, your loan account will be closed with this bank and you’ll get all the documents from the bank

Documents required for Personal Loan Pre-closure

  • Relevant loan documents
  • Proof of address and identity – Passport, Aadhaar card, Voter ID card, etc
  • Loan statements displaying the details of the EMIs paid till date
  • Cheque or demand draft

Documents you need to collect after personal loan pre-closure

  • Pre-closure payment receipt
  • No Objection Certificate to close the personal loan
  • Personal loan closure certificate
  • Payment of dues certificate


Can I preclose any type of loan?

Yes, preclosure of loan is allowed in every type of loan however, you’ll have to read the terms and condition beforehand and calculate the cost of doing so because sometime closure of loan account can be costly sometimes especially during the end of the loan tenure.

Are there any fees or penalties for loan preclosure?

Yes, preclosure of the loan comes with an added free which is certain percentage of the loan account. Every bank have different policies for that.

What is the process for initiating loan preclosure?

The process may vary among lenders, but generally, you need to inform the lender in writing about your intent to preclose the loan. They will provide you with the necessary instructions and documentation requirements.

Will loan preclosure affect my credit score?

Yes, loan preclouse is a positive sign for the CIBIL Score and you can improve your CIBIL Score when you preclose your loans.

Can I preclose a loan partially or only in full?

Depending on the lender’s policy, you may have the option to preclose a loan partially or only in full. Check with your lender to understand the available options.