How to calculate pre closure of loan?

To figure out how much you need to pay for pre-closing your loan, you’ll need to add up the remaining principal, any interest that has built up until the closure date, and any extra fees your lender may charge for early settlement. By calculating all these components, you make sure you’re paying the full amount required to close your loan account in one go without any dues outstanding.

The pre-closure calculation starts with the outstanding principal balance, which is the remaining loan amount excluding future interest. Add accrued interest from the last EMI payment date to the intended pre-closure date, calculated on a daily basis using the applicable interest rate.

Calculation steps:

• Determine outstanding principal from the latest loan statement
• Calculate accrued interest from last payment date
• Add prepayment penalty charges (if applicable)
• Include processing fees for pre-closure documentation

Most loans follow the reducing balance method where interest is calculated day to day on the outstanding principal amount. For example, if the annual interest rate is 12%, the daily rate becomes 12%/365 = 0.0329% per day.

Request an official pre-closure statement from your lender showing the exact breakdown of principal, interest, and charges. This statement typically includes a validity period, usually 7-15 days, during which the quoted amount remains applicable.

Some lenders charge prepayment penalties, particularly for fixed-rate loans or specific loan products. These charges typically range from 2-4% of the outstanding principal amount. Factor these costs into your pre-closure decision-making process.

Online calculators provided by lenders can estimate pre-closure amounts, but official statements provide accurate figures for actual settlement. Ensure you understand all components of the pre-closure amount to avoid payment shortfalls or surprises during the settlement process.