SBI Personal Loan Preclosure

SBI Personal Loan Preclosure vs. Prepayment: Key Differences

SBI enables you to make a pre-payment or a pre-closure for your personal loan. You have the flexibility to pre-pay in full or in parts. Moreover, you can do it during any phase of your personal loan.

SBI Personal Loan Preclosure Fees and Charges

1. With the exception of Rent Plus, which will impose a prepayment penalty equal to 1% of the loan amount prepaid, there will be no prepayment or preclosure penalties.
2. If you close your personal loan account from the proceeds of a new loan that you take under the same loan type, you will not be required to pay any foreclosure or pre-payment charge.
3. Only if the property is closed within two years of the loan's disbursement will foreclosure costs of 3% + GST on the outstanding balance be assessed.

How to Make an SBI Personal Loan Preclosure

1. You will need to first inform a bank representative at SBI by calling their customer care centre or by sending an email to them or by visiting any SBI branch.
2. You will have to discuss your plan to pre-pay your SBI Personal Loan and find out about the charges you will be paying for the loan.
3. You will need to keep relevant documents ready for initiating the pre-closure process.
4. Once everything is finalized, you will need to make the pre-closure of your loan in full or in parts.

You may have heard that it is always advisable to take a small loan amount and repay it as fast as possible. This makes sense when you have enough money for your various other monthly expenses.

If you are confident that you can manage with the funds you have, then you can repay your SBI Personal Loan as soon as possible and then clear off all your loan outstanding dues. When you do this, you will save a lot of money on your interest.

What is SBI Personal Loan Preclosure?

Pre-payment or pre-closure of a personal loan refers to repaying the entire loan amount or a few parts of the loan before the original due date of the loan.

When you make a pre-payment, you can enjoy a lot of savings on your loan interest. Typically, most banks have a certain lock-in period during which you will not be allowed to pre-pay your loan.

Once this period is completed and once you finish paying a certain number of EMIs (which is specified by your lender), you can repay your loan early. This can be done when you have built a lump sum amount of money in your personal bank account. You can utilize these additional funds to repay your personal loan early and clear your dues entirely.

Some banks also allow part payment where you clear a part of your loan before the due date. This can be done when you have a large sum of money but not sufficient enough to clear the full loan amount. You can go for part pre-payment to bring down your loan principal amount as well as interest amount.

Benefits of SBI Personal Loan Preclosure

Savings on Interest Costs:

Preclosing a personal loan can lead to significant savings on interest costs. For instance, if an individual takes a personal loan of Rs.10 lakh at an annual interest rate of 13% with a 5-year tenure, the EMI would be Rs.22,753, and the total interest payable would be Rs.3.65 lakh. By repaying the outstanding loan amount after just one year, the individual can save up to Rs.2.44 lakh in interest costs.

Reduced Share of Unsecured Credit in Credit Mix:Personal loans from SBI are unsecured. Prepaying these loans reduces the proportion of unsecured loans in the borrower’s credit mix. A higher share of secured loans can improve the credit score, enhancing the chances of obtaining another loan.

Higher Affordability of EMI:Banks prefer to lend to applicants whose total EMIs (including existing and new loans) are within 50-60% of their monthly income. By prepaying an existing personal loan, borrowers can reduce their EMI-to-income ratio, thereby improving their eligibility for new loans.

Disadvantages of SBI Personal Loan Preclosure

Liquidity-Detrimental Effect:

Borrowers often use their existing investments to prepay personal loans, which can affect their emergency funds. This may leave them vulnerable in situations such as medical emergencies, loss of income, or other contingencies. Consequently, they might have to take new loans at higher interest rates to meet their financial needs.

To avoid this, borrowers should only consider prepaying personal loans if they have sufficient emergency funds. Instead of depleting their investments, those with limited liquidity can opt for a personal loan balance transfer to a lender offering lower interest rates, thereby reducing their repayment burden and interest costs.

Important Points Before Prepaying Your SBI Personal Loan

When you decide to go for a pre-payment of your personal loan, you will have to bear in mind that your lender might charge a penalty for repaying your loan early. You will need to check with your lender regarding this before you start with the pre-payment procedure. Sometimes, this penalty may be higher than the interest amount that you will be saving for your personal loan. In such cases, it is better to not pre-pay your loan.

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