Step by step guide to getting a personal loan – Forbes Advisor INDIA

Personal loan foreclosure is the process of paying off the loan balance in full in one installment before the end of the loan term. The borrower can decide how many equivalent monthly installments (EMI) they want to pay before canceling the loan. They can plan loan foreclosures in advance and decide how much they want to pay at one time.

One of the most crucial aspects of personal loan foreclosures is a lockup period on your loan account. Borrowers must complete the lock-in period before deciding to settle their loan account and repay the outstanding amount in full. Here are the details you need to know before opting for a personal loan foreclosure.

Types of Personal Loan Foreclosures

Seizure of loan by the bank

Foreclosure of the loan is not always initiated by the borrower. If the borrower defaults on personal EMI payments for a continuous period or has stopped making monthly payments and is no longer financially able to repay the loan, then as a last resort the bank will have to foreclose on the loan.

In such a case, the bank will take the necessary steps to auction the borrower’s collateral in order to raise the money equivalent to the amount of the outstanding loan. After raising an equivalent amount, the bank will then proceed to seize the account.

Seizure of the loan by the borrower

As a borrower, when you have larger funds and want to lighten your financial burden, then you can decide to avail your loan by paying the loan amount in full. Before taking this step, you will also need to consider the fees involved in the process and also ensure that you have understood the terms and conditions involved in entering your loan account.

You will need to present proof of identity and other details specified by the bank. We will see this in detail.

7 steps to follow when entering a personal loan

In most cases, as a borrower, you are not permitted to enter a personal loan for a period of 12 months from the date of your first EMI. In some cases, banks may also ask you to give a 30-day foreclosure notice.

The entry process may vary from bank to bank, but here are some basic steps to follow:

Step 1: Locate the nearest branch

As foreclosure of a personal loan cannot be done online, to request a loan foreclosure you will need to visit your local bank branch or a financial institution from which you borrowed the loan.

Step 2: Submit a Foreclosure Request

The next step is to notify the bank in writing of your decision to repay the outstanding loan amount. Be sure to mention your personal loan account number in your application.

Step 3: Provide all required documents

You will then need to submit all the necessary documents as requested by the bank.

Some of the most commonly required documents and details include:

  • All documents and details of your personal loan.
  • Documents accepted as proof of identity by the government, such as – PAN card, Aadhar card, driver’s license or passport.
  • Bank statements which will be proof of last payment and EMI clearance.

Step 4: Intimation by the bank

Once all the required documents have been submitted, the bank or financial institution will then verify the documents. After which, they will then proceed to calculate the amount of the pending loan that you will have to pay after taking into account the EMIs and interest charges that have been paid to date. Along with this, applicable taxes and foreclosure fees will also be considered. The lender will then send you a foreclosure statement and specify the amount and repayment date of the outstanding loan.

Step 5: Repayment of the personal loan

You will then be required to make full payment of the pending loan amount along with other fees mentioned by the lender. The outstanding amount must be paid at least seven days before the next EMI of your personal loan. Paying a foreclosure for a personal loan can be made by check, demand draft, cash or by making an online wire transfer.

Step 6: Processing the personal loan entry

Once the payment has been received and the arrears settled, the bank or the financial institution will then proceed with the formalities for the seizure of the personal loan. In addition to stopping routine reminders and instructions regarding IMEs, the lender will also return all original documents to you and provide you with the set of documents below.

  • Acknowledgment letter and payment receipt
  • No contribution certificate
  • Certificate of no objection for seizure of personal loan
  • Personal loan closing certificate

If you do not receive an acknowledgment or payment receipt, be sure to submit a request for these documents, as it is important to keep proof of payment for your records in connection with a seizure of Personal loan.

Step 7: Keep rating agencies informed

Repaying your loan early will have a positive impact on your credit score. So, once you have been able to complete the personal loan foreclosure formalities and settle the arrears, be sure to keep the credit rating agencies informed about your personal loan foreclosure.

Fees levied on entering a personal loan

When you decide to grab a personal loan, in addition to paying your loan balance, in most cases you will incur certain fees that are levied by the lender. These personal loan foreclosure fees are levied to compensate for lost interest due to the borrower’s decision to repay the arrears, in a single payment.

These fees vary depending on the bank or financial institution with which you have a personal loan account. The fees collected are usually between 3% and 7% of the outstanding principal amount of the loan. In addition, applicable taxes are included.

Before resorting to foreclosing on a personal loan, be sure to take these costs into consideration to assess whether paying off your personal loan in full benefits you or adds to your financial burden.

Benefits of grabbing your personal loan

Here are some of the top reasons you should consider loan foreclosure:

  • First and foremost, you will be relieved of future repayments and your debt ratio will improve
  • You will save on interest and the overall cost of the loan
  • Loan foreclosure will also help to significantly improve your credit score


Although we have listed the benefits of loan foreclosure, the decision to repay the pending loan amount should not be taken in haste. Take the time to carefully evaluate the terms and conditions of the loan foreclosure as well as the fees levied and the overall costs that will be incurred when repaying the personal loan early.