|HDFC Personal Loan Preclosure Charges 2022|
|Prepayment in part/full||NIL until repayment of 12 EMIs (salaried) Part-payment allowed up to 25% of Principal Outstanding. It is allowed once in the financial year and twice during the loan tenure.|
|Pre-payment Charges on Principal Outstanding/Part Payment Charges||Salaried:|
13-24 months- 4% of outstanding principal
25-36 months- 3% of outstanding principal
>36 months- 2% of outstanding principal
Benefits of Pre-closing Personal Loan
Increased EMI affordability
Most banks offer loans to applicants whose total EMI is within 50-60% of their total monthly income. This includes their existing EMI and the EMIs for new loans. As a result, applicants who exceed this income limit are less likely to avail loans. That said, you can easily reduce the EMI/NMI ratio and improve your eligibility for availing other loans by prepaying your existing personal loan.
Savings on cost of interest
Borrowers availing personal loans can easily save on the interest costs that they would have incurred during their loan tenure by prepaying the loan amount. For example, if you availed a personal loan of Rs 10 lakh at 13% p.a. and repayment tenure of 5 years, then the EMI would be Rs 22,753 and total interest would be Rs 3.65 lakh. But if you choose to repay the outstanding personal loan after only a year, you can easily save the interest cost of up to Rs 2.44 lakh.
Reduced share of unsecured loan in credit mix
Credit mix is the ratio of secured and unsecured loans. HDFC personal loans are unsecured in nature, so prepaying the amount would reduce the proportion of unsecured loans in the credit mix. As a result, an increased share of secured loans will improve your credit score and increase your chances of getting another loan.
Disadvantages of Pre-closing Personal Loan
Negative impact on liquidity
Many borrowers end up using their existing investments to prepay their personal loans, which also affects their emergency funds meant for situations like medical emergencies, loss of income, etc. This can force the borrowers to avail personal loan at higher interest rates in order to meet their financial obligations or dealing with financial emergencies. So, to avoid this situation, consider prepaying your personal loan if you have sufficient funds. You should also avoid using your existing investment that you have saved for any unforeseen financial situation. Consider reducing your prepayment burden and interest cost by using personal loan balance transfer facility to transfer your existing loan to lenders offering lower personal loan interest rates.
HDFC Bank charges a prepayment fee of up to 2-4% on the outstanding loan amount in cases of personal loans availed at fixed interest rates. Borrowers who wish to pre-close their personal loan accounts can do so by paying the prepayment charges, which will also reduce their interest cost savings. Therefore, borrowers who wish to prepay their loans should opt for it only if the net savings is significant enough after accounting the prepayment/foreclosure charges.