{"id":20919,"date":"2021-07-13T10:25:21","date_gmt":"2021-07-13T10:25:21","guid":{"rendered":"https:\/\/tata-blog.osian.dev\/blog\/?p=20919"},"modified":"2021-07-13T10:38:00","modified_gmt":"2021-07-13T10:38:00","slug":"early-closure-of-a-business-loan-pros-and-cons","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/loan-for-business\/early-closure-of-a-business-loan-pros-and-cons\/","title":{"rendered":"Early Closure of a Business Loan: Pros and Cons"},"content":{"rendered":"\n

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Closing your business loan is unquestionably one of the most satisfying feelings in life. With no looming loan burden, you can spend your money more liberally on other investments you had to put on hold. Often, this financial freedom is what drives many self-employed individuals to foreclose their loans. If you’re one of them, read on!<\/p>\n\n\n\n

Now, while you do save a lot on interest in the long term, foreclosing your loan may negatively affect your finances. So, if you’re thinking of closing your loan before the due date, here are some pros and cons of foreclosing you should be aware of.<\/p>\n\n\n\n

Pros of early loan closure<\/strong><\/h2>\n\n\n\n

#1 Improved credit score<\/strong><\/h3>\n\n\n\n

Closing your loans before the pre-decided tenure can reflect positively on your credit report. With an improved credit rating, lenders will be more likely to approve your loan applications in the future. Hence, you\u2019ll be able to qualify for loans conveniently.<\/p>\n\n\n\n

Apart from fast approvals, a good credit score may also help you get competitive interest rates.<\/p>\n\n\n\n

#2 Savings on interest<\/strong><\/h3>\n\n\n\n

If you’re servicing a loan with high business loan interest rates, <\/strong>then early closure can help you save on the interest component of the EMIs. Closing the loan early essentially saves the money that would have been spent paying interest.<\/p>\n\n\n\n

Instead, you can put the money to work and improve other business operations or park them in an investment instrument such as fixed deposits, mutual funds, etc.<\/p>\n\n\n\n

Additional Read: <\/strong>Short-Term Business Loans vs Long-Term Business Loans<\/a><\/strong><\/p>\n\n\n\n

Cons of early loan closure<\/strong><\/h2>\n\n\n\n

#1 Cash flow crunch<\/strong><\/h3>\n\n\n\n

Foreclosing requires you to pay a hefty amount out of your pocket, which can put you in an immediate cash crunch. Therefore, it\u2019s advised to pre-close your loan only if you have an ample amount of cash available to sustain your business. In worst cases, an unplanned foreclosure can land you in another loan.<\/p>\n\n\n\n

#2 Foreclosure charges<\/strong><\/h3>\n\n\n\n

Although foreclosing can help you save a lot on interest, you also need to account for foreclosure charges onbusiness loans<\/a>.  These charges usually range between 2%-6% of the outstanding loan amount.<\/p>\n\n\n\n

Since you are already utilising a lump sum amount, paying the extra percentage can put a severe dent in your savings. That\u2019s why, before foreclosing, it\u2019s essential to do your math.<\/p>\n\n\n\n

So, calculate the total amount you\u2019ll be saving on interest, and subtract the foreclosing penalty from it. And only foreclose if the result is positive.<\/p>\n\n\n\n

#3 No tax deduction<\/strong><\/h3>\n\n\n\n

Loan borrowers can avail of tax deductions on interest payments under section 24C of the Income Tax Act. However, when you foreclose your loan, you essentially give up these benefits. In worst-case scenarios, your business can end up in a higher tax bracket than before.<\/p>\n\n\n\n

Additional Read: <\/strong>Business Loans and Taxes \u2013 Everything You Must Know<\/a><\/p>\n\n\n\n

Parting thoughts<\/strong><\/h3>\n\n\n\n

To foreclose or not to foreclose \u2013 the answer lies in your preferences. If you have enough surplus cash flow and don’t need the tax benefits, foreclosure is the right choice. However, if you don\u2019t fancy paying foreclosure charges, you should hold off from foreclosing your loan.<\/p>\n\n\n\n

Need help with financing your business? Tata Capital has the right business finance solution for you! Enjoy fast approvals and disbursals, flexible repayment options, and easy-to-meet business loan eligibility \u2013 all at affordable interest rates! <\/p>\n\n\n\n

Learn more about your EMI obligations by using our business loan EMI calculator<\/a>.<\/p>\n\n\n\n

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Apply Now<\/a><\/div>\n<\/div>\n<\/div>\n\n\n\n
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Closing your business loan is unquestionably one of the most satisfying feelings in life. With no looming loan burden. <\/p>\n

Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":20920,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[26],"tags":[],"class_list":["post-20919","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-loan-for-business"],"yoast_head":"\nEarly Closure of a Business Loan: Pros and Cons - Tata Capital Blog<\/title>\n<meta name=\"description\" content=\"Here's all that you need to know about early loan repayment & how it can benefit you. Check out Pros and Cons of Early Closure of a Business Loan. 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