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Procedure: How to Prepay Loan
February 06 , 2013

  1. Prepayment is usually allowed after 6 months. Many banks charge a penalty of 2-3% of the outstanding amount for repaying loan amount before the tenure ends. Prepayment penalty has been banished in floating rate home loans by banks and housing finance companies.
  2. Prepayment may be allowed entirely or in part by different banks. If allowed in part find out in how many installments the remaining amount can be paid back. Also get details from the bank about how much you are required to pay including any prepayment fees and the applicable service tax.
  3. If you want to prepay in order to avail loan at lower interest from another lender, try talking your existing lender into lowering your rate close to what the others are offering. If he asks to pay a small one-time fee for this, you might still be better off than going through the trouble of switching lenders.
  4. Also keep in mind the tax benefits you could avail on principal and/or interest payments every year had you not prepaid the loan.

  1. Fill up the form for foreclosure and give a written application to the bank manager to close the loan. If EMIs are deducted from your account through ECS, issue a stop-payment instruction in the absence of which the following month's EMI may be deducted but it will be refunded. Carry with you the bank statement showing clearance of the last EMI.
  2. Make payment through cash, cheque or DD as directed by the bank. Don't forget to collect any original documents submitted to the lender.
  3. If while going for the loan you expect to make prepayment choose a shorter tenure with higher EMIs. This will reduce the total interest payment to be made.

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