Bank of Baroda Personal Loan Foreclosure Charges

Savings on Interest Cost

Existing borrowers of Bank of Baroda Personal Loan can easily save on their interest costs by prepaying the outstanding loan amount. For example, if an individual avails a personal loan of Rs 20 lakh at 8% p.a. for tenures of up to 5 years, the EMI would be Rs 40,553 and the total interest cost would be Rs 4.33 lakh. If the borrower decides to opt for foreclosure after a year of availing the personal loan, his savings on interest cost would be Rs 2.85 lakh.

If the same individual avails a personal loan of Rs 10 lakh with the same loan tenure and personal loan interest rate, his EMI will be Rs. 20,276 and the total interest cost would be Rs. 2.16 lakh. If he later decides to opt for Bank of Baroda Personal Loan foreclosure after a year of availing the personal loan, his total interest cost savings will be Rs. 1.42 lakh.

Lower Proportion of Unsecured Loan Credit Mix

Credit mix is the ratio between the total outstanding secured and unsecured loan/credit facilities for an individual. Credit bureaus consider this ratio while calculating an individual’s credit score. As Bank of Baroda Personal Loans are unsecured in nature, personal loan foreclosure reduces the proportion of unsecured loans in the credit mix. Any increase in the proportion of secured loans improves the credit score for borrowers along with enhancing their eligibility for availing personal loans in future.

Improved Eligibility for Availing Additional Loans

Lenders usually prefer approving loan applications of individuals whose total EMI/NMI ratio (including their existing EMIs and EMIs of the proposed personal loan) is within the 50% to 60% of their total monthly income. Prospective loan borrowers who exceed this limit have lower chances of availing personal loans. Such loan applicants can improve their personal loan eligibility by foreclosing their existing personal loans and thereby, lowering their EMI/NMI ratio to within the desirable levels.

Nil Pre-closure Charges

Bank of Baroda charges zero personal loan foreclosure charges on the outstanding loan amount as the bank offers personal loans at floating interest rates.

Negative Impact on Liquidity

Many personal loan borrowers use their existing investments for making prepayments/foreclosing their loans. Some of them also end up using their emergency funds to prepay their personal loans. Doing so reduces their ability to deal with emergency situations like medical emergencies, loss of income due to job loss/illness, other financial exigencies etc. Similarly, using existing investments to prepay or foreclose Bank of Baroda Personal Loans might adversely impact the achievement of their crucial financial goals. Thus, using emergency funds or existing investments for Bank of Baroda Personal Loan foreclosure or prepayments might force one to avail loans at higher interest rates to deal with financial exigencies or achieve his crucial financial goals later. Therefore, existing personal loan borrowers of Bank of Baroda Personal Loan should make prepayments or foreclosure only if they have adequate emergency funds. They should also avoid prepayment by redeeming their existing investments earmarked for crucial financial goals.

Instead, borrowers wishing to reduce their repayment burden and interest cost can opt for personal loan balance transfer facility wherein they can transfer their existing personal loans to other lenders offering lower personal loan rate of interest.