The terms “prepayment” and “foreclosure” are two distinct terms that relate to loans. Both involve the repayment of loans however, they differ with respect to intent, procedure and final outcome.
Some borrowers consider the payment of interest to be a financial burden. If this is the case they may be able to pay the loan or even go into foreclosure. In order to be able to handle this, it is essential to be aware of the conditions for repayment.
This can also assist you make the most of any option of repayment you pick completely. In these situations it is recommended to use an EMI calculator that includes prepayment is a great tool to estimate the total amount to be paid in installments.
This article will allow you understand the difference between foreclosure and prepayment in depth, giving an deep understanding of each concept.
What Is Loan Prepayment?
Prepayment is a possibility for those who are borrowers that allows them to pay off the loans in advance. It can be done in part or entirely. It helps you put any additional funds you can find in your account of debt. This can significantly reduce the total amount of debt you have to pay. It also decreases the amount of the interest you must pay back via EMIs.
In this instance you are able to use the EMI calculator that includes prepayment to ensure an accurate estimation of the amount you’re saving. People who receive a annual bonus or other incentives from their employers typically prefer this kind of loan also.
It is important to remember that loans can come with penalties for prepayment or fees. Certain lenders might charge these penalties in order to offset the loss of interest income that is due to late repayment. So, borrowers must carefully read loan agreements to be aware of the terms and conditions pertaining to the prepayment.
What Is Loan Foreclosure?
Contrary to prepayment of loans foreclosure can be a legally-enforceable process where the borrower pays back his debt completely before the loan’s expiration date. In this way, one could significantly reduce their home loan’s interest rate by a substantial amount. In addition, they are able to close the loan account sooner than they could.
Foreclosure is viewed as an option last resort for lenders due to the massive expenses and resources. The majority of lenders prefer working with borrowers to come up with alternatives to go ahead with foreclosure. The alternatives could include loan modifications and repayment plans as well as refinancing. If the borrower is not able to settle the debt and foreclosure is the only option for the lender to get their money back.
For foreclosure on loans, you have to make a formal request to the appropriate bank or lending company. The lender will determine the value of foreclosure and provide you with an estimate. The estimate will consider the outstanding debts you have and the amount of interest to be paid and the remaining loan term each of which will affect your current interest rate..
In this case, you are able to pay the full amount or stop the loan if are content with the results.
Conclusion
Many Indian lenders are now offering attractive loan options because of the greater competition on the market. This is because lenders are not fond of accumulating large amounts of debt. This is why people tend to choose to pay back their loans as quickly as possible, whether through foreclosure or prepayment, and then reduce the balance remaining.
In exchange, borrowers can now can access loans with lower EMIs and shorter durations. A EMI calculator that includes prepayment makes it easier to calculate EMIsand can be extremely helpful in organizing your finances over the long term.
Be sure to conduct a thorough research and evaluate different options for prepayment before you make your final choice. For a more easy decision-making process this post about the differences between Foreclosure and Prepayment loans will be extremely helpful.
