Banks & NBFCs go all out to woo potential borrowers. They advertise their interest rates, fees, and other charges to attract borrowers to their loan offerings. Borrowers too are constantly looking to avail credit for a number of reasons. Personal loans, credit cards, home loans, car loans, education loans, and many other loan products are available to borrowers to meet their financial needs. 

There are various options to repay a loan too. Though most loans go for a monthly EMI repayment, gold loans offer one time repayment too. Credit cards give you revolving credit that you can use whenever you want and repay, without interest, within 50 days. So borrowers can conveniently repay their loans without worrying about late payments or defaults. 

So 'Loan Repayment Options' is a vital factor to consider while availing a loan. 

What are the factors to consider regarding loan repayment options? What should I look for while trying to repay a loan? Creditmantri shares some of the factors to consider before you repay a loan - 

1. Foreclosure Charges: 

This is an important aspect you have to confirm with your bank before availing a loan. As per latest guidelines from RBI, banks cannot charge foreclosure charges for loans with floating rate of interest. So it is important to check the interest rate of the loan before availing it; personal loans are mostly fixed rate of interest, while home loans and card loans are floating rate of interest.  Foreclosure charges can range from 2% up to 5% of the total outstanding. When you try to pre-close a loan early on in your loan tenure, 

2. Lien on collateral: 

Most lenders set a lien on the collateral you submit for the loan. For example, in a car loan, the purchased car is hypothecated to the lender until the loan amount is repaid. These liens are placed on the collateral to protect against losses from bad loans. Many people are unaware that a lien is the legal right of a banker (or any creditor) to sell the borrower's collateral property in the event of non-repayment of the loan amount. These liens are reflected in your credit report too. So once you repay the loan, ensure that the lien is removed from the collateral. Also remember to get the NOC (No Objection Certificate) from your lender to remove the lien so that you have complete authority to sell the asset. 

3. Effect on your credit score: 

Lenders use credit scores to determine the creditworthiness of applicants. A low credit score is a red flag for lenders. Repaying your loan on time is a good start to improving your credit score. That is why it is easier to set ECS or standing instruction for your monthly EMI payments. This ensures that your loan repayments are done on time. Also, when you make additional repayments towards your loan account, your credit score will improve as well. Failing to repay a loan on time will negatively affect your credit score and also affect your ability to get loans in the future. 

4. Procuring original documents: 

When availing the loan, you would have submitted a few documents in original; the house sale deed, asset documents, securities and bonds, etc. Once you repay the loan, remember to get the original documents from your lender. Also, get the latest 'Encumbrance Certificate' detailing the loan closure and legal rights transferred to your name. This will be very important to assert your right over the asset, property, or collateral. 

5. Available modes to repay a loan: 

What are the options allowed by the bank to repay a loan? Do they accept a NACH mandate, or do they want cash payments? Can you make the payment conveniently through online modes or should you visit the branch every month to pay? With our busy lives, convenient repayment options should be available for us to service the loan comfortably. 

Popular Read: How To Pay Off Debt 7 Strategies That Work

 Is Early Loan Repayment A Good Idea?

We avail loans to meet big ticket expenses or to make a quick payment. Getting a loan necessarily does not mean that you do not have the funds to pay back the loan on time. So you can repay the loan in full on time or you can make partial payments now and then and close down the loan well before the due date. 

  • Paying off your loan earlier will reduce great costs in terms of interest and other charges. 
  • It gives a boost to your credit score owing to the fact that you have a great repayment history with your lender. 
  • More funds to reinvest in your business or to invest in other ventures.
  • Chances of getting better loans are higher when you pay off your loan earlier. 
  • Asset appreciation leads to better returns.

Also Read: 4 Common Loan Mistakes To Avoid


A loan can be an investment when you repay it in full before the stipulated due date. Home loans and education loans can even get you additional tax benefits on the interest component. But failing to repay the loan on time and defaulting on payments can be hazardous to your financial health. Your credit score can be negatively affected and hinder your chances of getting low-interest loans in the future. So, consider repaying your loan earlier than the loan tenure and get higher benefits. 


FAQs of  Looking To Repay A Loan? Here Are Some Facts Worth Considering First

1. Which is better? Floating rate of interest or fixed rate of interest?

A floating rate of interest allows you to pre-close your loan without any penalty charges. So it is better if you are planning to repay your loan 

2. Why is my bank not allowing me to pre-close my personal loan that I took 5 months back? 

It depends on the loan terms. Most lenders do not allow you to pre-close your loan before at least 12 EMIs have been paid. So check with your bank on the pre-closure process. 

3. What are the most common ways to repay a loan? 

A NACH mandate is presently the best mode of loan repayment. Some lenders also allow ECS, standing instruction, or post-dated cheques to be used.

4. What are the factors that affect the loan repayment?

Your loan repayment is primarily dependent on the monthly EMI amount, your income, and other EMI liabilities. 

5. How can loan repayments affect my credit score? 

Repaying your loan on time is vital to your credit score. Failure to make timely repayments will affect your credit score negatively. You won't be eligible to get a loan in the future if you have not made timely repayments.