July 23, 2024

Looking To Repay A Loan? Here Are Some Facts Worth Considering First

Repay A Loan

A lot of people today are availing of loans for different reasons that may be either buying assets or looking after the current financial situation of an individual. Some people may use these funds to take care of current expenses and some may use the funds to create assets that can give a long-term benefit for them. There is no limit to the type of loans that are available in the market today. The loans vary from vehicle loans, home loans, personal loans, loans for shopping, and paying credit card bills. Even when the interest rates charged are very pocket friendly and the tenures offered are also favorable, the fact that debt has to be repaid someday remains with the borrower.

The feeling of closing a loan and getting lighter in the debt burden is very satisfying. The mere thought of foreclosing on a loan gives us relief. If a loan is foreclosed, the interest component that has to be repaid is minimum, and thus after paying the principal the borrower is debt-free. The credit score is also affected positively if any loan is foreclosed by the borrower. However, being happy about getting rid of the debt burden should not lead you to miss out on essential details of the loan and also the terms and conditions.

 Factors to be kept in mind while Closing a Loan

In case of foreclosure of a loan the bank charges penalties or a fee for foreclosing to the borrower. You should check and verify if all such payments have been made. Sometimes the penalties and fees may end up being legal matters if not paid in time to the lender.

In case of foreclosing a loan, the borrower should be cautious that all the documents that are related to the loan that state that the loan is repaid by the borrower has been collected. For the lender, all documents stating that the loan and all other dues have been paid have to be collected.

In the case of lenders providing vehicle and home loans, a lien is created by the lender on the collateral property as a security in case of non-payment of loans. The lender in this case has a right to sell the property in case of non-payment of dues. When the borrower is closing a loan, a NOC(No objection certificate) should be availed which states that the lender has no right over the collateral and security and all the dues have been paid by the borrower.

In the case of home loans, complacency is seen in relation to receiving documents from the lender which are related to the property of the borrower. A detailed statement of transaction called the Non-Encumbrance Certificate must be obtained by the borrower which states that all the dues and liabilities in respect of the creditor have been paid.

If a loan is taken by the borrower, the credit score is affected and the repayment or foreclosure is easily reflected in the credit score. Thus, while closing the loan the borrower should request the bank to update the credit score of the borrower so as to facilitate future borrowings.

In case the borrower is burdened by the process of repayment loan, the borrower should always keep the option of refinancing open so that the credit score and the financial health report are not affected and the borrower will have a good credit history.

 Types of Repayment Methods


 Equated monthly installments are the most popular repayment options. Every installment involves a part of the interest and the principal for repayment. This amount is fixed for tenure and is scheduled every month.

 Some of the banks also provide the option of prepayments

The partial prepayment of a loan is where the borrower can repay the loan partially for a specified amount. This method helps to reduce the principal and the interest burden is also reduced.

The full prepayment has some charges associated with it and hence not a lot of people prefer to prepay their loans even if they can pay the balance.

 Bullet Prepayment

In this method, the borrower mainly pays the interest installment only after every month, and in the last installment which is the bullet installment, the borrower pays the principal amount in one go.

Does loan repayment affect credit health?

A positive loan repayment history will always upgrade the credit score and help the borrower obtain credit at a lower rate and also very easy. The credit health it is negative then the borrower can face issues while availing of the loan as banks and financial institutions do not favor such borrowers.

Credit bureaus compile data from repayment history and generate the report for the borrower.


Taking a loan and making debt is a huge responsibility and requires meticulous planning by the borrower for the finances and other processes. The borrower should be very particular that all the legal formalities are complied with and the lender is also convinced that all the required documents are submitted. The collateral and security can be lost if any documentation is missed by the borrower. The paperwork related to assets pledged as collateral should be evaluated thoroughly by the borrower. No processes related to documents and certificates should be left at the mercy of the lender. The borrower should make sure that no rights are remaining with the lender post repayment. The penalties and other dues that are pending should be cleared by the borrower. In short, all the formalities related to the loan should be evaluated once again at the time of closure of the loan.