What is the Procedure for Education Loan Foreclosure?
Last Updated : June 12, 2020, 12:41 p.m.
Students borrow an education loan for their educational needs such as admission for overseas universities or to pursue their graduate and diploma courses. As the loan can be given for a maximum of 15 years, many won’t like to be under debt for that long. So, you will look to close your loan account before it runs its original span. You can save from your daily routine to ensure you do close the loan before and save on your interest outgo. The bank may levy a prepayment fee too. But the question is, how can you plan your education loan foreclosure? Well, this is what this article is for. Read this and plan your foreclosure.
Use the Education Loan EMI Calculator to Decide on Your Foreclosure Amount
It would be easy for you to make prepayments if you check the balance amount and calculate the savings. See the example below to know how the foreclosure is better for your loan payments.
For Example, Neeta borrowed INR 23,00,000 from the bank to finance her higher studies at an interest rate of 10.55% per annum. She chose a tenure of 10 years. After getting a job, she started the loan payment, but after 6 years of its payment, it became difficult for her to manage the savings. So, Neeta decided to foreclose the loan. Look at the table below to know how much she saved after the loan closure.
| Particulars | Details |
|---|---|
| Loan Amount | INR 23,00,000 |
| Interest Rate | 10.55% |
| Tenure | 10 Years |
| EMI | INR 31,099 |
| Interest Payable for 10 Years | INR 14,31,937 |
| Outstanding Balance after 6 years | INR 12,13,518 |
| Paid Interest Till 6 Years | INR 11,52,680 |
| Saving | INR 2,79,257 (14,31,937-11,52,680) |
Foreclosure Procedure
- Visit the bank branch and talk to your bank representative
- Fill up the loan closure request form
- Wait for the bank confirmation
- Check the loan balance amount
- Pay the outstanding balance via cheque, ECS or any other method
- Get the NOC from your bank and close your account
Tax Benefits After Education Loan Foreclosure
There won’t be any tax benefits after you foreclose the education loan. However, the tax benefits apply for only 8 years since the time the loan repayment begins. So, if you have taken a loan for say 15 years, you can save tax for 8 years and save interest obligations for the remaining 7 years by doing a foreclosure.
Foreclosure Fee of Education Loans
Check the table below to know the foreclosure fee levied by different lenders.
| Bank | Foreclosure Fee |
|---|---|
| Kotak Mahindra Bank | 5% of the Principal Outstanding |
| Bank of Baroda | NIL |
| State Bank of India (SBI) | NIL |
| Punjab National Bank (PNB) | NIL |
| HDFC Bank | 4% of the Principal Outstanding |
| RBL Bank | NIL |
| Union Bank of India | NIL |
Things to remember for education loan foreclosure
- Check Your loan balance
- The interest you paid for the loan
- The prepayment penalty if the bank charges from the student
- Calculate your savings
- Take lump sum amount ready for the loan closure
- Choose the payment option which is suitable for you
- Confirm the closure with the bank once it was paid and take the NOC and pledged collateral papers.