Paying off your car loan early or foreclosing the loan means paying your entire outstanding loan amount in one instalment. This loan repayment option allows you to pay your loan ahead of the tenure and help you save on the overall interest cost.
If you have an ongoing car loan, you often think about paying off it early to become debt-free soon. However, foreclosing your loan has its pros and cons. Before we go ahead to know the impact of foreclosing the car loan, read on to know about our car loans and how you can foreclose it.
How to pay off your car loan early
Bajaj Finance offers two types of car loans – new car finance and used car loans.
As the name suggests, new car finance helps you to fund the purchase of a new car, while used car loans help you finance the purchase of a second-hand vehicle.
If you have chosen any of our car loans – you can foreclose it by visiting our customer portal – My Account. All you have to do is sign-in to our customer portal, select your loan account and proceed to make a foreclosure payment.
On the one hand, it helps in becoming debt-free sooner and help you save on interest payment. However, there are also potential drawbacks to consider before making such a financial move. Let us delve into its pros and cons so that you can make an informed decision.
Pros of paying off your car loan early
Become debt-free sooner: If you have paid off your car loan early, you can become debt-free faster as you do not need to pay your loan EMIs. Being debt-free sooner allows you to allocate your resources towards other financial goals, such as saving for retirement or building an emergency fund.
Save on the overall interest cost: One of the most significant advantages of paying off your car loan early is minimising the total interest cost. By closing your loan before the end of the tenure, you can reduce the amount of interest accrued over time. This can result in substantial savings, especially if your loan carries a relatively high-interest rate.
Early ownership of your vehicle: Foreclosing your car loan early means gaining full ownership of the vehicle sooner than anticipated. To own your car outright offers peace of mind and greater flexibility in how you use and manage the vehicle.
Cons of paying off your car loan early
Likely impact on your credit score: Surprisingly, paying off your car loan early may not always have a positive impact on your credit score. Closing a loan account prematurely might affect your credit mix, which is an important factor in influencing your credit score. While the impact might be temporary, it is essential to weigh it. Also, each time you make an on-time payment towards your loan, it contributes positively to your credit score, albeit by a small margin. Over time, this consistent repayment pattern can significantly improve your credit history, particularly if you have had a bad credit history.
However, paying off your car loan prematurely may not have the same beneficial effect on your credit score. While it does demonstrate financial responsibility, it might not provide the same sustained positive impact on your credit profile as regular, timely payments do. It is important to consider these potential consequences on your credit score before you decide to foreclose your car loan.
Additional charges: Some lenders impose foreclosure penalties or additional charges for paying off a car loan early. These fees are designed to compensate the lender for potential lost interest income. Before foreclosing the loan, carefully review your loan agreement to understand if any additional charges apply. Factoring in these costs is crucial in determining the overall financial benefit of paying off the loan early.
Considering these pros and cons can help you make a well-informed decision regarding whether to foreclose your car loan. It is essential to evaluate your individual financial situation, future goals, and the terms of your loan carefully before proceeding. If you are looking to pay off any of the car loans offered by Bajaj Finance, you can visit our customer portal – My Account to foreclose your loan.
You can also download our app and foreclose your ongoing car loan with us on the go.
