What is partial repayment, early repayment, pre-closing of the loan? (2023)

People seek loans to meet various life needs. These loans includeCommercial loans, private loans, car loans, education loans, home loans etc. After using the loan, the next important obligation is to repay the loan. each onetype of loanwith a fixed interest rate.

Borrowers are required to pay monthly installments and interest in order to settle the loan amount within a certain period. Some borrowers find the interest rate somewhat financially burdensome. In this case, they can choose prepayment, partial installments or early closing of the loan. Whichever repayment plan you choose, you need to understand the loan repayment terms in order to benefit from it.

What is partial loan repayment?

First, let's understand what partial payment means. A partial loan payment occurs when the borrower has some funds available that do not correspond to the entire outstanding principal. The borrower deposits this amount into the loan account to reduce the outstanding principal. Therefore, the EMI and the total interest you pay will be reduced. However, it is worth noting that you can only take advantage of this repayment plan if you spend a large amount at once as part of the payment.

Partial loan repayment can help you reduce the principal. This in turn lowers interest rates. Overall, you end up with a slightly lower overall EMI burden. Therefore, when you have excess funds, it is recommended to partially repay the loan.

Partial repayment is a simple and effective way of lowering interest rates. When you make a partial payment, the amount of the partial payment will be deducted from the outstanding principal. After minimizing the interest costs, the savings you achieve will depend on the time and amount of the installments. Paying a small amount is not good, especially if the bank or lender charges an upfront fee.

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Partial payment of personal loans has another advantage. You can make partial payments as many times as you want. Some borrowers pay multiple installments, while others pay a regular lump sum. Installment payments will reduce your EMI amount and total interest paid irrespective of the frequency of payments.

If your bank or financial institution imposes an upfront fee on each transaction, you can still benefit from paying off large amounts regularly. All in all, you'll save more on interest. The only downside to partial payments is that the bank may not allow you to do this for certain types of loans, in particularpersonal loan. They set the lock-in period to the term and part of the payment amount.

Also Read:-Introduction to partial early repayment of private loans

What is an advance payment loan?

Early repayment is an option that allows you to repay part or all of the loan before the end of the loan term. Most banks allow you to prepay the outstanding principal after one year. This repayment plan can help you save a lot on interest. Let's understand this with an example.

Ajay got a loan of Rs 300,000 for 5 years at 15% annual interest. His monthly installment amounts to HRK 7,137. The interest he pays for the first year is Rs 35,529. The outstanding principal after the first year is Rs.2,64,160. After prepaying the remaining amount, he saved Rs 57,049 in interest.

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Prepayment options allow you to save interest and get out of debt faster. Additionally, the bank or lender may reward you if you pay off the personal loan early. For example, banks offer value-added services such as no-fee transaction accounts or no-balance savings accounts to borrowers who choose to prepay.

However, some banks impose penalties of 2% to 5% on loan foreclosures. The fee is charged on the outstanding principal amount. You can get a better understanding of these numbers by using themOnline EMI calculator. This calculator estimates loan costs and savings with prepayment tools. You simply need to fill in the loan amount, interest rate, term, processing fee, prepayment method and foreclosure fee to get the desired result.

The Reserve Bank of India (RBI) recently ordered banks not to charge any penalty for early termination of loans. However, the change is limited to variable rate loans. Personal loans usually have a fixed interest rate, so this rule does not apply.

What is a pre-closing loan?

close beforehand orforced auctionIt refers to the lump sum repayment of the outstanding principal before the end of the loan period. Legal action helps to significantly reduce interest obligations. It also helps to close the credit account early before the credit account expires.

To cancel or close the loan in advance, the borrower must contact the appropriate credit institution or bank. The lender will calculate the foreclosure after taking into account the total outstanding debt, the remaining term of the loan and the interest paid. If the calculation and the amount are satisfactory, you can repay the amount and close the loan.

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Personal loans usually have a one-year term, depending on the terms of the lender. After that time, you can prepay the balance and close the loan account. Be sure to get a "no fee" certificate and original documents from your bank or lender after settlement.

In some cases, the bank or lender will foreclose on the loan. This happens when the borrower is unable to repay the loan amount and does not pay the EMI. The lender sells the borrower's security. After withdrawing an amount equal to the outstanding loan amount, the lender will seize the loan account.

The difference between partial repayments, early repayments and early closing of the loan

partial loan repayment

repay the loan early

Loan before closing

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reduce principal

reduce principal

repay the loan in full


the interest rate remains unchanged

the interest will be lower

the interest rate remains unchanged

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EMI will be reduced

EMI will be reduced

No electromagnetic interference

Impact on credit rating

Negligible impact on you because you are paying off part of the loancredit score. It reduces the total amount of the loan and the interest, which makes it easier to repay the loan on time. But prepayments and foreclosures can have a positive effect on your credit.

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Many lenders offer attractive loan options. However, borrowers do not want to be in debt. They want to repay the loan as soon as possible. Early repayment and foreclosure options allow them to get out of debt earlier and save on interest. When they invest the remaining funds in the loan account, they reduce the outstanding loan amount, thereby reducing the EMI or loan tenure.

Frequently asked questions

  • What is the difference between foreclosure and foreclosure?

The term "buy-out" is used when the borrower prepays part of the loan before the due date, while the term "forced auction" is used when the borrower pays off the entire loan before the due date.

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  • What is early closure of the bank?

In the banking industry, foreclosure occurs when the borrower prepays the loan amount before the end of the loan period.

  • What is the difference between prepayment and partial payment?

By using the installment option, borrowers can reduce their monthly EMI and total interest paid. With early repayment, the borrower pays the entire amount of the loan (principal + interest) and closes the loan.

  • Will foreclosure affect your CIBIL score?

No, loan cancellation will not affect your CIBIL score. However, if you, as a new or inexperienced borrower, are still building your credit score, it makes sense to continue making payments throughout the life of the loan.

  • Does partial prepayment reduce EMI?

Partial prepayments may result in shorter tenure or reduction in EMI amount.

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Earlier Following


What is partial repayment, early repayment, pre-closing of the loan? ›

The term prepayment is used when a borrower prepays part of the loan before the end of the term, whereas the term foreclosure is used when a borrower repays the entire loan before the end of the tenure.

What is a partial repayment of a loan? ›

A partial repayment is when only the outstanding borrowing amount is repaid. Select “Repayment of the entire amount” to repay the outstanding borrowing amount including the interest.

What is the meaning of pre-closure of home loan? ›

Preclosing a home loan simply means paying off your home loan way before the term of the mortgage is done. This can be done for various reasons such as refinancing, saving on interest, etc.

What is the difference between pre-closure and pre payment? ›

Foreclosure, Pre-closure, or Full Prepayment: Foreclosure, also known as Pre-Closure, is making a pre-payment in full of the outstanding principal amount in a single installment before the end of the loan term. In this option, post payment of the entire outstanding amount, the loan account is closed.

How does a pre-closure loan work? ›

Many borrowers prefer to repay their loans at the earliest. So, a pre-closure or foreclosure is just that; the complete repayment of your loan in a single instalment before the due date. That is, paying the pending amount in one shot instead of paying monthly installments (EMIs).

What is partial early repayment? ›

The partial early repayment of the mortgage occurs when you repay the bank part of the principal that it lent you early; this will remove part of the weight without fully repaying the loan. You can cancel and fully repay your mortgage at any time if, for example, we have saved money and want to give the loan a boost.

What is the difference between a partial payment and a prepayment? ›

By using the part payment method, a borrower can reduce his/her monthly EMIs, and total interest paid. In case of prepayment, the borrower pays of the entire loan amount (principal + interest) and closes the loan.


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