Foreclosing a business loan—i.e., paying it off before the end of its scheduled term—can be a smart move to reduce your interest burden. But lenders may impose foreclosure charges, which can impact your total savings.
What Is Foreclosure in a Business Loan?
Foreclosure means repaying your entire outstanding loan amount before the end of the loan tenure. This is different from prepayment, where you repay only a part of the loan ahead of schedule.
- Example: If your loan tenure is 36 months and you clear it in 18 months, that’s foreclosure.
What Are Foreclosure Charges?
Foreclosure charges are penalties or fees imposed by the lender when you close the loan earlier than agreed. These charges are a percentage of the outstanding principal.
Typical Foreclosure Charges in India (2025)
| Lender | Foreclosure Charges |
| Bajaj Finserv | 4% (after 1 EMI clearance); 0% for flexi loans |
| Tata Capital | 4% on principal outstanding |
| ICICI Bank | 4% + GST after 6 EMIs |
| HDFC Bank | 2–4% depending on tenure |
| Lendingkart | 3–4% typically |
| Kotak Mahindra Bank | 4–5% depending on repayment pattern |
| Fullerton India | 4% + taxes after 12 EMIs |
| Indifi & Flexiloans | Case-specific; ranges between 2% to 5% |
Note: Charges may vary based on:
- Whether the loan is secured or unsecured
- If you’re an individual or a company
- When in the loan cycle you’re foreclosing
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Why Do Lenders Charge for Foreclosure?
Lenders earn profits from the interest over the full tenure. If you repay early:
- They lose expected income
- There may be administrative costs
- They might have already deployed capital expecting longer terms
Hence, foreclosure charges help lenders recover lost interest margins.
Foreclosure vs Prepayment: What’s the Difference?
| Parameter | Foreclosure | Prepayment |
| Scope | Entire outstanding loan | Partial early repayment |
| Charges | 2%–5% on remaining amount | Often 0%–2% depending on amount |
| Benefit | Ends loan liability completely | Reduces EMI or tenure |
When Can You Foreclose a Loan?
Most NBFCs and banks allow foreclosure only after 6–12 EMIs have been paid.
Example:
- Bajaj Finserv requires at least 1 EMI
- HDFC Bank often needs 12 months before allowing foreclosure
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Is Foreclosing a Business Loan Worth It?
Foreclosure is worth it when:
- You have a lump sum available (e.g., profits, asset sale, investor funding)
- You are early in the loan tenure (more interest saved)
- Foreclosure charges are less than interest saved
Pro Tip: Use an EMI amortization calculator to compare remaining interest vs foreclosure charge.
Documents Needed to Foreclose
- Loan account number
- Foreclosure request letter
- PAN card & ID proof
- Cheque or DD for final amount (if offline)
- Bank NOC after closure
Bravima Solution Tip
At Bravima Solution Pvt Ltd, we:
- Help you calculate whether foreclosure is financially wise
- Negotiate with NBFCs or banks for waiver or reduction in foreclosure charges
Assist with refinancing if you’re closing a high-interest loan for a better one
Secure Your Business Funding – Apply in Minutes
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