A loan against property is a secured loan that gives you access to a significant amount with a lengthy repayment window. Nevertheless, you wouldn’t like to shoulder the debt for a long time, especially if you’re lucky enough to have received a windfall gain or a bonus. In such cases, foreclosing your loan against property seems not only tempting, but also logical. However, foreclosing a loan against property has its own advantages and disadvantages.
Here are the pros and cons you should keep in mind.
Advantages of Foreclosing a Loan Against Property
You save on Interest
The most important benefit of applying for loan against property for foreclosing is that you can save on your overall interest payment. However, it is best to first check your outstanding principal amount and interest left on the loan. If you see that you have already repaid most of the interest portion on your loan, in the first half of your tenor, you can use the money you have put aside for foreclosure for something else. For example, you can invest the amount for a high return.
Releases your Stress
Keeping your loan open for a long time and paying EMIs very month may decrease your morale or cause tension. When you foreclose your loan, you may feel relieved and stress-free, and also be more in control of your finances.
Put Disposable Funds to Better Use
When you foreclose a loan and are no longer paying EMIs towards it, you can divert the freed up income towards other channels. For instance, you can invest in SIPs to create wealth and meet your financial goals like pay for your children’s education, make a down payment for a new home, and others.
Disadvantages of Foreclosing a Loan Against Property
Compromising Investment Gains
If you foreclose your loan using surplus cash then you may lose out on investment gains, had you invested it in lucrative options like mutual funds, equity, etc. This would have allowed you to create a corpus of funds that could come in handy for emergencies or to meet a range of goals like financing your retirement. However, keep in mind that your returns need to be higher than the interest charged on your loan against property for this to be true.
When you foreclose your loan, the lender loses out on interest payment from you. To make up for this loss, lenders charge a foreclosure penalty of 1% to 4% on your outstanding principal or foreclosure sum. So, clarify these charges to see whether adding these charges still results in you paying less than the overall interest you are looking to save.
When you foreclose your loan, you may be utilising all your income towards this move. This may result in a cash crunch, making you unprepared to deal with other needs, especially if they are urgent in nature. To prevent this, do proper calculations before foreclosing your loan against property so that you don’t have to borrow additional credit to finance medical bills or other requirements.
Before you decide to foreclose your loan against property, weigh the pros and cons to take the most advantageous decision. You can also use the loan against property foreclosure calculator to calculate your foreclosure amount in seconds and make complex calculations easier.
If you are looking for an affordable Loan Against Property in India or want to do a balance transfer, consider applying with Bajaj Finserv. When you avail this loan, you can enjoy a high loan amount of up to Rs.1 crore if you are salaried and up to Rs.3.5 crore if you are self-employed. You can also enjoy simple loan against property eligibility criteria to qualify for the loan with ease. Additionally, the loan against property documents required are also minimal, and you can benefit from quick approval within 72 hours. You can repay this loan as per your convenience via a flexible tenor of up to 18 years as a self-employed individual or within 20 years if you are salaried. Moreover, you can also enjoy the Flexi Loan Facility that allows you to borrow multiple times, as and when you need it, and pay interest only on the used amount.
All you have to do is enter basic details like your name and contact number in order to access the custom deals awaiting you.
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