It is true that by settling your loan early, you will be saving money. But, at the same time, you should not overlook one point. There are bound to be some ‘hidden’ charges in respect of early settlement of a loan. It is, therefore, better for you to take into consideration a few things before you sign the deal. If your plan is for a long term, pre-closure will not be difficult. This reduces, considerably, the burden of interest. You have, however, to ensure that by pre-closing the loan, you will not be paying much by way of penalties.
Charged heavily for preclosing the loan!
Though it is good to pre-close a loan, which the lender too will be inclined to agree with, you have to consider the amount of fees payable for pre-closing the loan. The fees charged for a pre-closure, vary from one lender to another. All do not have any uniform rates in this regard. And the fees thus charged have different ‘names.’ You have to make it a point to go through your loan agreement carefully to find out if there is any fee payable for a pre-closure. In case you are not able to find the details yourself, you may contact your lender and check with him; he will give you the details.
The lenders do not have any fixed set of penalty fees payable in respect of a pre-closure. But generally, such penalty fees will more or less be equal to the interest amount payable for one or two months. Keeping this figure in mind, you can work out on the time of your pre-closure. If a loan is pre-closed in its early stages, it will be advantageous. Pre-closing the loan, during the last stages of the loan is not advisable. The fees you will be paying will be more than what, you think, you would save. There are a few lenders who are willing to permit you to make some payment much before there is any charge of fees. This is an ideal option in that there will be no charge of fees later.
If you have a set mind to close the loan much earlier, it is better you go in for a ‘flexible loan.’ Though these loans carry somewhat higher interest rates, the lenders show some concessions. They also allow you to close your loan as early as you want and this does not cost any additional amount to you, in the form of penalty fees. However, since these loans attract higher rates of interest, you are advised to opt for this loan only if you are fully confident of closing the loan much before the specified date. If you are not sure of pre-closing the loan, then forget about this option.
Yet another type of loan is available in the market. It is known as “Fixed Rate Loan.’ This loan does not have any penalty clause in case of a pre-closure of a loan. This loan is not well known to many people. And there is a wrong notion, even among those who know about this loan, that this benefit of ‘no penalty fee’ is restricted to ‘expensive loans’ only. It is nothing but a mistaken notion. Besides, even some cheaper loans are there, where there is no extra charge as penalty for pre-closure. If your intention is to close the loan early, please ensure that you have selected the right lender whose offer is not only attractive and beneficial, but also there are no hidden clauses in respect of pre-closure.