You can prepay or foreclose your loan it to rid yourself of debt, but should you? The answer to this is subjective and only you can decide if it is right for you. Since loans can be secured or unsecured, you need to weigh the pros and cons to make the best financial decision. This is especially true when you are thinking of foreclosing a secure loan like a loan against property.
To make the right decision, you must consider important financial elements first. To get started in the right direction, follow these pointers.
Evaluate your personal finances
To consider foreclosure, you must ensure that you are not taking on financial stress. So analyse your personal finances and gauge whether or not a foreclosure will actually end up being beneficial to you. While it may seem like a priority to free yourself from debt, it would be unwise to take on this expenditure if your finances don’t comfortably allow for it. For example, if you have to dig deep into your savings to pay off the loan, you might end up with nil financial backup and this could cost you heavily. You can even use a loan against property foreclosure calculator to get an accurate picture of what you will save through a foreclosure and then make an informed decision.
Revisit your existing debt
Before you consider foreclosing a secured loan like a loan against property, check whether you have any other unsecured, high-interest debt. Allot these a higher priority because they are costlier to service as compared to secured loans that have a low interest rate. The aim behind foreclosure is to get debt-free and save money. In light of saving money, it is counterproductive to service a loan with a lower interest rate first.
Check the foreclosure charges
A vital step before you attempt foreclosure is to check the charges involved. Some lenders have a high processing fee for foreclosure and this may eat into your savings. This is why it is essential that at the time of application, you check the foreclosure policy and ensure that you won’t be spending excessively on this front.
Foreclosing a loan against property in India can be both advantageous and disadvantageous as well. For one, it helps you get debt-free quicker, but at the same time, it disqualifies you from the benefits that come with servicing a loan against property. For example, the Bajaj Finserv Loan Against Property lets you take advantage of the Flexi Hybrid feature. This allows you borrow from your sanction in parts, at any time during the tenor. You can borrow as you need and you are only charged nominal interest on the amount you have utilised. This gives you access to emergency funding all through the tenor of your loan and if you need funds, you don’t have to apply for a second loan.