What are the prepayment and foreclosure charges associated with LAP EMIs?

Most loan providers permit prepaying or foreclosing your loan against the property before the tenure is completed; however, certain penalty charges apply. Prepayment refers to paying off a part of the loan amount ahead of schedule, therefore, reducing the overall cost of the loan. Foreclosure is when you pay off the entire loan amount before the scheduled end of the loan term. Foreclosure is also sometimes called full pre-payment.

Financial institutions levy these prepayment/foreclosure fees to compensate for the loss of interest income when the loan is closed prematurely. For instance, some financial institutions may levy a foreclosure charge of up to 4%.

Some loan providers also impose a lock-in period from loan disbursal date during which foreclosure is not allowed, usually 12-15 months. This allows recovery of their processing costs for originating the loan.

When availing a loan against property, it is important to be aware of the loan provider’s prepayment and foreclosure policies. While charges are applicable in most cases, comparing them across lenders can lead to potential savings. Understanding these charges will enable you to make an informed borrowing decision.