How to Calculate Business Loan Foreclosure Charges?

When taking a business loan, borrowers are legally liable to repay the principal amount with interest through monthly EMIs within the loan tenure. However, some borrowers may get considerable capital through external sources such as PF amount, etc., which they prefer to use to repay the loan in one go, even before the loan tenure. A business loan foreclosure is paying off the loan balance in full before the completion of the loan's term.

However, foreclosing the loan results in direct losses for the lender as the borrower doesn’t have to pay interest on the prepaid EMIs. Hence, the lenders square off the losses by adding foreclosure charges to their business loans.

These charges can be penalties levied by lenders to cover their income loss during prepayment, which differs depending on the outstanding loan amount. The method stated below simplifies calculating your business loan foreclosure charges.

A Step-By-Step Process To Calculate Foreclosure Charges On Business Loan

Borrowers choose to foreclose their business loans to reduce their outstanding financial liabilities. However, foreclosure charges on a business loan vary from lender to lender. Here is how you can calculate the charges for foreclosing the business loan:

• Step 1:

Note down the remaining principal of your agreed loan interest and tenure.

• Step 2:

Check for foreclosure clauses in your Business loan agreement

• Step 3:

Determine foreclosure conditions and charges

• Step 4:

If you meet the conditions, calculate the foreclosure charge rate with your outstanding loan amount.

Should You Foreclose Your Business Loan?

Foreclosing the business loan offers multiple benefits, the most significant being mitigating financial liability. However, foreclosing your business loan requires you to pay a lump sum amount along with the charges for foreclosing. Hence, for a business loan that you can steadily pay over time, it becomes futile to use the lump sum amount for foreclosure.

You can use the same lump sum amount to diversify your investments, ensuring the multiplication of wealth through effective return on investments.

Avail Of A Business Loan For IIFL Finance

Fulfilling a business’ capital requirement needs is vital in ensuring a business's success, which you can fulfill through an ideal loan. IIFL Finance business loan can be your go-to product to satisfy all your business needs. IIFL Finance loan for business’s interest rate is attractive and affordable to ensure the repayment doesn’t create a financial burden. The business loan offers instant funds up to Rs 30 lakh with a quick disbursal process.

FAQs:

Q.1: What is a Foreclosure Charge?
Ans: Lenders levy foreclosure charges on borrowers looking to repay their outstanding business loan in one go before the loan tenure.

Q.2: Why should I pay a business loan foreclosure penalty?
Ans. If you prepay your business loan, the lender will lose the interest for the remaining period. Hence, lenders levy such charges to offset the money they stand to lose if borrowers decide to pay off their loans early.

Q.3: How much foreclosure penalty does IIFL Finance charge?
Ans: The charges are 7%+GST for foreclosure within 1-6 months and 5%+GST for foreclosure within 7-24 months.