Canara Bank Personal Loan Pre-closure Charges

Personal loan borrowers can easily save the interest cost by prepaying the outstanding loan amount. For example, if an individual borrows a personal loan of Rs 10 lakh at 13% p.a. for tenures of up to 5 years, the EMI would be Rs 22,753 and the total interest cost would be Rs 3.65 lakh. If the borrower prepays the outstanding loan amount after a year, the savings on interest cost would be up to Rs 2.44 lakh.

Credit mix is the ratio of secured and unsecured loans. Canara Bank Personal Loans are unsecured loans. Hence, personal loan pre-closure would reduce the proportion of unsecured loans in credit mix. Increased proportion of secured loan improves the credit score of the borrowers and increases their chances of getting loans in future.

Loan applicants whose EMI/NMI ratio (including existing EMIs and EMIs of the proposed personal loan) is within 50-60% have higher chances of getting their loan applications approved. Lenders do not usually consider the applicants exceeding this limit. Thus, applicants considering to avail additional loan facility can reduce their EMI/NMI ratio by making prepaying their existing loans thereby improving their eligibility for personal loans, home loans, etc.

Many borrowers use their existing investments for making prepayments. Some also end up using their emergency funds to prepay their personal loan. While using emergency fund to prepay personal loans would reduce their ability to deal with emergency situations like medical emergencies, loss of income due to job loss or illness or other financial exigencies etc., using existing investments to make prepayments might adversely impact the achievement of their crucial financial goals. Thus, using emergency fund or existing fund to prepay personal loans might force one to avail loans at higher interest rates to deal with financial exigencies or achieve his crucial financial goals. Therefore, personal loan borrowers should prepay their personal loans only if they have adequate emergency fund. 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.

As Canara Bank offers personal loans at floating interest rate, it cannot charge any pre-closure fees from its personal loan borrowers. However, in case of personal loans availed at fixed interest rates, lenders are free to charge prepayment or foreclosure charges. In such cases, prepaying personal loans would reduce the overall savings in interest cost. Hence, the borrowers should opt for prepayment only if their net savings in interest cost is significant enough after accounting the pre-closure charges.