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This guide explains personal loan preclosure – what it means, when it makes sense and how it affects your charges and credit score. You’ll find the RBI disclosure rule on foreclosure charges, a worked interest-saving example and a step-by-step process to close your loan account. A five-minute read covers everything before you close a personal loan early. 

Yes, you can close a personal loan early. This is personal loan preclosure, or foreclosure of personal loan: repaying your entire outstanding amount in one go, before your tenure ends. Wondering how to close personal loan early, or whether you can foreclose personal loan without penalty?  
Then this guide is definitely for you. It covers the meaning, RBI rules, charges, a worked example and the exact steps for personal loan closure. 

Preclosure cuts your total interest outgo and gets you debt-free sooner, but it is not always the smart move. Before you close loan account, check whether your savings beat the charges and confirm your lender allows preclosure after the lock-in period. 

DID YOU KNOW? 

The ideal time to pre-close a personal loan is early in your tenure, when the interest component of your EMI is still high, or whenever you get a lump sum such as a bonus or maturity payout. Closing too late, once most interest is already paid, rarely makes sense after the foreclosure charge. 

What is Personal Loan Pre-closure? 

Personal loan pre-closure means paying the outstanding principal and interest in one go before your scheduled tenure ends. Lenders call this foreclosure of personal loan, since the account closes before its original term. You can usually do this only after the lock-in period, typically 6 to 12 months from disbursal. 

If you do not want to close personal loan completely, partial prepayment is the middle path: pay off a chunk of the principal early to reduce your EMI or tenure, without closing the account. 

WATCH OUT 

As per the guidelines, lenders must disclose all foreclosure and prepayment charges upfront in the loan agreement and cannot apply undisclosed charges later. Always check your sanction letter for the exact slab before you close loan account.  (Source: RBI (fair practices / loan disclosure norms) – flag for review) 

Is It Good to Close a Personal Loan Early? 

In most cases, yes. Here is what to check before preclosure of personal loan: 

1. Save on interest: Interest is front-loaded, so closing earlier saves more. 

2. Foreclosure charges: Typically 2 to 5 percent of the outstanding principal, plus GST. 

3. Financial readiness: Ensure the payout does not derail other goals. 

4. Lock-in period: Confirm you have crossed the minimum months required. 

5. Credit score impact: A small, temporary dip, followed by improvement. 

6. Partial prepayment: If a full payout is not feasible, prepay a part instead. 

QUICK STAT 

Worked example: say you borrow ₹5,00,000 at 14% p.a. for 36 months, with an EMI of around ₹17,090. After 12 EMIs, the outstanding is roughly ₹3,60,000. Preclosing now means a foreclosure charge of approximately ₹10,800 (3% plus GST), against an interest saving of approximately ₹47,000 on the remaining 24 EMIs – a net saving of roughly ₹32,000 to ₹36,000. These figures are illustrative; actual numbers depend on lender and rate. 

When is the Ideal Time to Pre-close a Personal Loan? 

7. Best early in the tenure: Interest is highest in the first EMIs, so closing sooner saves the most. 

8. Not ideal in the final stages: You have paid most interest by then, so the charge may outweigh the saving. 

9. When you get a windfall: A bonus, maturity amount or gift makes preclosure easy on your budget. 

10. When you plan a bigger loan: Clearing this loan improves your debt-to-income ratio, helping you qualify for a larger loan later, such as a home loan. 

Partial Prepayment vs. Full Pre-closure 

Aspect	Partial Prepayment	Full Pre-closure
What it means	Paying a lump sum towards the principal while keeping the loan active	Paying the entire outstanding amount and closing the account
Effect on EMI or tenure	Reduces EMI or tenure, your choice	Loan account closes immediately
Charges applicable	Usually lower; some lenders waive it after a few EMIs	Typically 2 to 5 percent of the outstanding principal
Impact on credit score	Minimal, since the account stays open and active	Small, temporary dip, followed by long-term improvement
When to choose	When funds are limited but you want lower EMIs	When you have the full amount and want to be debt-free

Personal Loan Pre-closure Charges Explained 

Foreclosure charges vary by lender: 

11. Typical range: 2 to 5 percent of the outstanding principal, plus GST. 

12. Lock-in period: Most lenders block preclosure in the first 6 to 12 months. 

13. Reducing charges: Some lenders waive the charge the longer you hold the loan. 

14. Rate type: Charges mostly apply to fixed-rate personal loans, since most Indian personal loans are fixed rate. 

15. Before you commit: Always ask for a written quote. 

PRO TIP 

Ask your lender for a written pre-closure quote before you commit funds – this confirms the exact charge slab and avoids last-minute surprises at the branch or on the app. 

How to Pre-close a Personal Loan: Step-by-Step Process 

1. Check eligibility: Confirm you have crossed the lock-in period. 

2. Request a closure statement: Ask for the exact outstanding amount and charges. 

3. Compare savings vs charges: Weigh interest saved against the fee. 

4. Arrange the funds: Keep the exact amount ready, with a small buffer. 

5. Make the payment: Pay via cheque, demand draft or netbanking. 

6. Collect your NOC: Get a No Objection Certificate in writing. 

7. Update your credit report: Check after 30 to 45 days to confirm closure. 

Additional Documents Required for Pre-closure 

To close personal loan successfully, lenders may require: 

16. Loan account statement showing outstanding balance 

17. PAN card or Aadhaar card for identity verification 

18. Cheque, demand draft or netbanking proof of payment 

19. Written request for pre-closure 

20. Loan agreement copy, if requested 

DID YOU KNOW? 

After payment, always collect your No Objection Certificate and closure confirmation – you will need these to correct your credit report if any discrepancy shows up later. 

Impact of Pre-closure on Credit Score 

Foreclosure of personal loan does not hurt your credit score in the long run. There can be a small, temporary dip right after closure, since your credit mix and account age change slightly. Over the following months, being debt-free typically improves your CIBIL score as your credit utilisation and repayment burden drop. Lenders also view a fully repaid loan favourably later, so this short-term dip is rarely a reason to delay preclosure if you can genuinely afford it. 

Things to Consider Before and After Pre-closure 

21. Verify your lender’s pre-closure policy and exact charges in writing. 

22. Keep enough funds ready before you start. 

23. Avoid liquidating critical investments unless the saving is significant. 

24. Choose partial prepayment instead if a full payout stretches your finances. 

25. Tax benefits check: If you have claimed a tax deduction linked to this loan, confirm how closure affects it first. 

26. Emergency fund preservation: Do not empty your emergency fund to preclose a loan. 

27. Update your credit report once the closure reflects. 

Close Your Loan with Fibe Easily 

With Fibe Instant Cash Loan, you can borrow up to ₹10 lakhs at affordable interest rates, with the flexibility to prepay or foreclose whenever it suits you. This lets you repay on your terms and keep your total interest outgo in check.  

Download the Fibe App or visit our website today to apply and manage your loan with complete flexibility. 

FAQs On Personal Loan Preclosure 

1.Does early closure of the loan affect CIBIL score? 

No major negative impact. Expect a small, temporary dip due to a shorter credit history, but your score typically improves within a few months once the loan shows as closed. 

2.Can I pay all EMIs at once? 

Yes, this is foreclosure of personal loan. Check with your lender whether any charges apply before you pay. 

3.Can I close a personal loan in 1 year? 

Yes, most lenders allow preclosure after the lock-in period, generally once you have paid 12 EMIs. 

4.What is the ideal time to pre-close a personal loan? 

Early in your tenure, when interest forms a larger part of your EMI, or whenever you have a lump sum such as a bonus or maturity payout. 

5.What are the personal loan pre-closure charges in India? 

Most lenders charge 2 to 5 percent of the outstanding principal, plus GST, though some reduce or waive this over time. 

6.How is the pre-closure amount calculated for a personal loan? 

Outstanding principal plus accrued interest till the closure date, plus the foreclosure charge and GST, if any. 

7.Is personal loan pre-closure free on Fibe? 

Charges depend on your loan terms and tenure completed. Check your Fibe app or agreement for the exact charge. 

8.How do I pre-close my personal loan on Fibe? 

Log in to the Fibe app, go to your active loan and select the preclosure option to view your outstanding amount and pay. 

A loan guarantor is a person who agrees to repay a borrower’s loan if the borrower fails to do so. Guarantors help improve loan approval chances, especially for borrowers with low credit scores, insufficient income, or limited credit history. 

In this blog, we’ll understand the meaning of a loan guarantor, their role and responsibilities, eligibility requirements, types of guarantors, associated risks and what happens if the borrower defaults. We’ll also compare guarantors with co-signers and explain when lenders may require one for loan approval. 

Loan Guarantor Meaning 

So, what is guarantor in loan? A loan guarantor is a person who agrees to take legal and financial responsibility for a borrower’s loan if the borrower is unable to repay it. In short, the guarantor acts as a financial backup for the lender. 

Unlike a co-signer who shares joint responsibility from the very beginning, a guarantor’s liability usually arises only when the borrower defaults on repayment. This means the guarantor is not expected to make regular EMI payments unless the borrower fails to do so. 

Lenders often ask for a guarantor when: 

• The borrower has a low credit score 

• The applicant has unstable income 

• The borrower is new to credit 

• The requested loan amount is high 

According to RBI guidelines, lenders are allowed to define their own internal policies regarding guarantors based on the borrower’s risk profile. 

Types of Guarantors 

There are mainly two types of guarantors in lending: 

1. Financial Guarantor 

A financial guarantor agrees to repay the borrower’s loan if the borrower defaults. The lender evaluates the guarantor’s income, credit score, repayment history, and financial stability before approval. 

Let’s say, a father becomes a guarantor for his daughter’s education or personal loan. 

2. Non-Financial Guarantor 

A non-financial guarantor primarily confirms the borrower’s identity, residence, employment, or credibility rather than repayment capacity. 

For example; an employer confirms an employee’s job stability and employment status. 

Personal Loan Guarantor Requirements 

To become a guarantor for a personal loan, an individual usually needs to meet certain eligibility criteria set by the lender. 

Common Requirements Include: 

• High credit score 

• Stable source of income 

• Strong repayment history 

• Low credit utilisation ratio 

• Financially stable employment profile 

Typically, the guarantor can be a: 

• Parent 

• Spouse 

• Sibling 

• Relative 

• Close family friend 

Standard Eligibility Criteria for a Guarantor 

Requirement	Typical Criteria
Minimum CIBIL Score	Usually 700 or above
Age Range	Generally 21 to 65 years
Employment Type	Salaried or self-employed with stable income
Income Stability	Consistent monthly income preferred
Credit History	Clean repayment track record

Lenders may have slightly different eligibility rules depending on the loan type and risk assessment. 

Documents Required to Be a Guarantor 

A guarantor usually needs to submit the following documents during the loan application process: 

Identity Proof 

• Aadhaar Card 

• PAN Card 

• Passport 

• Voter ID 

Address Proof 

• Utility bills 

• Passport 

• Rental agreement 

• Driving licence 

Income Proof 

For salaried individuals: 

• Salary slips 

• Bank statements 

• Form 16 

For self-employed individuals: 

• ITR documents 

• GST returns 

• Business proof 

• Bank statements 

Other Documents 

• Passport-size photographs 

• Employment proof 

• Existing loan details (if applicable) 

When is a Loan Guarantor Required? 

Lenders may ask for a guarantor in situations where the borrower’s repayment capacity appears risky or insufficient. 

Common Scenarios Include: 

• The borrower has no credit history 

• The applicant has a low CIBIL score 

• The borrower recently started a new job 

• Income is insufficient for the desired loan amount 

• The borrower already has multiple ongoing loans 

In such cases, a guarantor reduces the lender’s financial risk and improves approval chances. 

For unsecured loans like personal loans, lenders may ask for either: 

• A guarantor, or 

• Collateral/security 

Since personal loans usually do not require collateral, having a guarantor acts as an alternative form of repayment assurance. 

Real-life example: 

A self-employed freelancer with fluctuating monthly income may struggle to qualify for a high-value personal loan independently. However, adding a salaried guarantor with stable income can significantly improve approval chances. 

What is the Role of a Guarantor in a Loan? 

A guarantor plays an important legal and financial role in the loan process. 

Key Responsibilities Include: 

• Signing a legally binding agreement with the lender 

• Assuring repayment if the borrower defaults 

• Covering unpaid EMIs, penalties, and interest dues 

• Supporting the borrower’s loan eligibility 

• Helping lenders minimise repayment risk 

The guarantor’s responsibility can continue until the entire loan is repaid. 

Importance of a Loan Guarantor 

A guarantor can significantly improve the borrower’s loan approval chances and strengthen the lender’s confidence. 

Why Guarantors Matter 

• They provide financial security to lenders 

• They improve loan eligibility for borrowers 

• They help first-time borrowers access credit 

• They may help borrowers secure higher loan amounts 

• They improve approval chances for low-credit applicants 

• They can support faster approval for urgent funding needs 

• A creditworthy guarantor may help the borrower secure better loan terms, including lower interest rates, due to reduced lender risk 

For example, borrowers with thin credit files may receive lower interest rates if backed by a financially stable guarantor. 

Pros and Cons of a Guarantor in a Loan 

Pros	Cons
Helps borrowers get loans despite low eligibility	Guarantor becomes liable if borrower defaults
Improves chances of approval	Guarantor’s credit score may get affected
May help secure lower interest rates	Future borrowing ability may reduce
Enables access to higher loan amounts	Legal recovery action may involve guarantor
Helps build borrower’s credit profile	Guarantee usually cannot be withdrawn easily

Guarantor vs Co-Signer 

Although many people use these terms interchangeably, a guarantor and a co-signer are different. 

Aspect	Guarantor	Co-Signer
Liability	Secondary — steps in only if borrower defaults	Primary — equally responsible from the start
Loan Ownership	Not a joint borrower	Considered joint borrower
Credit Impact	Usually affected only upon default	Appears on credit report immediately
EMI Responsibility	Conditional	Shared from day one
Release Options	Limited until repayment	May be released if lender permits

Example: 

If your parent acts as a guarantor, they pay only if you fail to repay. But in a co-signed loan, both parties share equal responsibility from the beginning. 

What Happens If the Borrower Defaults? 

If the borrower stops repaying the loan, the lender can legally demand repayment from the guarantor. 

Consequences for the Guarantor May Include: 

• Liability to repay pending EMIs 

• Negative impact on CIBIL score 

• Legal notices and recovery proceedings 

• Difficulty obtaining future loans 

• Reduced borrowing capacity 

In some cases, lenders may directly approach the guarantor without exhausting all recovery efforts against the borrower first. That is why becoming a guarantor should always be a carefully considered decision. 

How to Choose the Right Guarantor for Your Personal Loan 

Selecting the right guarantor is extremely important for smooth loan approval and repayment security. 

Tips for Choosing a Suitable Guarantor 

• Choose someone with a strong credit score 

• Ensure they have stable income and employment 

• Discuss responsibilities openly before applying 

• Pick someone financially disciplined 

• Ensure the guarantor understands legal obligations 

Things a Guarantor Should Consider Before Agreeing 

• Why the borrower needs the loan 

• Whether the borrower has repayment capacity 

• Whether they can repay the loan themselves if needed 

• The borrower’s financial discipline and trustworthiness 

• The total liability involved, including penalties and interest 

A guarantor should always read the loan agreement carefully before signing. 

Conclusion 

A loan guarantor can make it easier for people to get a loan when they do not meet all of the lenders requirements. This can be a help for people who are borrowing money for the first time or for people who have a low credit score or for people who do not have a lot of income.  
Being a loan guarantor is a responsibility. You have to think before you agree to do it, understanding the risks and the responsibilities of repaying the loan. 

If you need to borrow money, Fibe is an option. Fibe offers Online Personal Loans of up to ₹10 lakhs. The process is quick and easy to do. You can also choose to repay the loan over a period of time, up to 36 months. This makes it easier for people to borrow money from Fibe. You can apply easily through the Fibe app or website. 

FAQs on Loan Guarantor 

What are the risks of being a loan guarantor? 

Some major risks include: 

• Repayment liability if the borrower defaults 

• Negative impact on the guarantor’s credit score 

• Reduced eligibility for future loans 

• Possible legal action from lenders 

• Long-term financial responsibility until the loan closes 

Can a guarantor be removed from a loan? 

Generally, guarantors cannot be removed easily once the loan agreement is signed. However, some lenders may allow replacement or removal after reviewing the borrower’s repayment history and updated financial profile. 

What is the RBI rule on guarantors? 

The RBI allows lenders to frame their own guarantor eligibility policies. Financial institutions typically assess: 

• Income stability 

• Creditworthiness 

• Employment status 

• Residential stability 

• Existing liabilities 

What is the minimum credit score required to be a personal loan guarantor? 

Most lenders prefer a guarantor with a CIBIL score of 700 or above. A higher credit score improves approval chances and may help borrowers secure better loan terms. 

Can a self-employed person be a guarantor for a personal loan? 

Yes, self-employed individuals can become guarantors if they have stable income, strong financial records, and a good repayment history. Lenders may ask for ITRs, bank statements, and business proof for verification. 

What happens to a guarantor if the borrower defaults? 

If the borrower defaults, the guarantor becomes legally responsible for repaying the outstanding loan amount, including interest and penalties. The default may also negatively impact the guarantor’s credit score and future borrowing ability. 

An instalment loan is the most common type of credit that banks and NBFCs offer. Once you borrow a required sum, you need to repay the amount along with interest in affordable instalments within a specific timeline. 

You can use the borrowed amount for the following purposes:

• To pay educational expenses
• To clear hospital bills
• To finance a vehicle
• To purchase a property

Read on to know more about this financial tool and its benefits. 

Instalment Loan Meaning 

Check out some important points about this form of credit:

• The borrowed sum attracts interest, which you must also pay as the equated monthly instalment or EMI
• You can avoid paying the amount as a lump sum
• Pay the borrowed amount for a predetermined period, called a loan term, which may range from a few months to a year
• The lender will close your loan account once you repay the entire outstanding amount

Types of Instalment Loans

Instalment loans are classified into two types: 

Secured Loans

• You need to pledge your valuable assets as collateral
• In the case of default on repayment, lenders can rightfully sell or auction your pledged assets to recover the loan amount
• Examples of secured loans include gold and home loans

Unsecured Loans

• In this form of credit, there’s no need to pledge collateral
• The borrowing costs may be higher, as there is a risk of default for the lender
• Examples of unsecured loans include personal and student loans

Instalment Loan Example

Some additional examples include:

• Auto Loan: This secured instalment loan allows you to buy a new or used car by pledging the vehicle as collateral, typically for a tenure ranging between 2 and 7 years
• Buy Now, Pay Later Facility: This short-term, unsecured loan makes shopping easy by providing interest-free credit
• Payday Loan: This is a short-term, high-cost, personal loan which helps you meet emergency financial needs 
• Student Loan: This is a type of credit that allows you to finance your education and other related expenses 

Pros and Cons of Instalment Loans

Here are some benefits of these forms of credit: 

• It helps you avoid lump sum payment 
• It allows you to manage a monthly budget with a fixed instalment amount
• It enables you to build a good credit score for future loans 
• You can decide on a suitable tenure as per your repayment capacity 
• Taking an instalment loan online allows you to get instant approval 
• Allows you to cover all your major life expenses

While it is a good option, you must also consider its drawbacks, which are as follows. 

• For a secured type of loan, your asset is at risk for the chosen tenure
• Some lenders may have stringent approval criteria
• There may be additional charges involved, which can increase your borrowing costs

based on these facts, you can decide whether or not you should opt for an instalment loan. Compare interest rates and other terms before selecting a lender. One such NBFC offering affordable loan terms is Fibe. With our Instant Personal Loan, you can borrow up to ₹5 lakhs hassle-free from the convenience of your home. 

You can choose a flexible tenure of up to 36 months and get the loan amount transferred to your account within 10 minutes after approval. This way, you can manage your instalment loan payments effortlessly. Download our Personal Loan App or visit our website to get started!

FAQs on Instalment Loans

How do instalment loans work?

• Say you have applied for instalment loans online and received approval from the lender
• The amount will be credited to your bank account
• You must pay a fixed monthly instalment, including the interest and the principal amount, to the lender across a chosen timeline
• The loan account gets closed once you clear the outstanding 

What are the types of instalment loans?

• Secured loans when you pledge your collateral
• Unsecured loans when there’s no need to pledge your assets 

What is an example of an instalment loan?

All loans for which you pay EMIs across a fixed timeline are instalment loans. They include: 

• Personal loans
• Car loans
• Home loans
• Gold loans
• Education loans 
• Payday loans

Wondering, ‘Can I get a personal loan without ITR? Yes. Most lenders require self-employed applicants to submit their income tax returns to review their income and repayment capacity. However, some use alternative methods for this assessment, making loans accessible even when you don’t have your tax filing records. 

Read on to learn how to get a loan without ITR.

Tips to Get a Personal Loan Without ITR

Here are some ways to get the funds without submitting your income tax documents:

Provide Other Income Proof Documents

Since lenders require tax returns to gauge your income, you can provide other documents as income proof. These include:

• Your bank statements
• Your rental income
• Your income from investments

Search for Suitable Lenders

As mentioned, several lenders, like Fibe, offer a loan without ITR documents. They use alternate methods to assess the borrower’s income and repayment ability. This information is generally available on their websites. So, do your research and apply accordingly.

Pay Your Dues on Time

Having a solid repayment record also helps you get a loan without submitting ITR documents. It shows a stable income and good repayment behaviour, so lenders easily approve your loan. You can try the following strategies to ensure timely payments: 

• Keep reminders
• Set up autopay
• Opt for reminders and alerts from lenders 
• Check statements and due dates regularly

Get a Secured Loan

While ITR is required for a personal loan, which is unsecured, it may not be necessary when you apply for collateral-backed funding. This is because they can liquidate your assets to recover the outstanding amount if you default. Various types of collateral that you can offer include:

• Gold
• Real estate
• Investments
• Antiques

Negotiate with the Lender

You can also talk to various lenders and communicate the non-availability of your tax return documents. This will help you figure out alternate ways that can get you the required funding. 

Improve Your Creditworthiness 

Having a high credit score helps increase the chances of approval since it represents:

• Good repayment history
• Experience with credit
• Stable source of income

Lenders consider you a safe borrower this way and approve your application even if you don’t provide your ITR documents. You can maintain a good credit score by following these tips:

• Clear your credit card and loan EMIs on time
• Keep your credit utilisation ratio low
• Maintain a healthy credit mix
• Check your credit report regularly for errors
• Avoid applying for multiple loans simultaneously

Eligibility Criteria for a Personal Loan

Here are the general requirements you need to meet:

• Proof of Indian citizenship or residency
• A stable source of income
• A minimum credit score of 650
• Self-employed individuals must be between 21 and 60 years
• A minimum work experience of 2 years in the industry

Document Requirements for a Personal Loan

Here is a general overview of the paperwork you need to submit: 

• Identity Proof: Passport, Aadhaar Card, Voter ID card or Driving licence
• Address Proof: Passport, Aadhaar Card, Voter ID card or Driving licence
• Income proof: Bank statement of the last 3 months or Salary slips of the last 3 months 

With this information, you can manage your personal loan application and increase your chances of getting a loan without ITR. You can get an Instant Personal Loan from Fibe easily since we ask self-employed individuals to submit alternate documents for eligibility checks. 

At Fibe, you can get funds with a simple online application and minimal documentation at affordable interest rates. Download the Personal Loan App or log in to our website today and meet your financial needs with ease.

FAQs on Personal Loan Without ITR

Can we apply for a personal loan without ITR?

Yes, you can get funds even if you don’t have your tax returns. Here are some tips:

• Apply for a secured loan
• Offer other income proof documents
• Clear your dues on time
• Apply with a suitable lender
• Increase your credit score
• Negotiate with the lender

Can I get a loan if I don’t pay income tax?

Yes, you can get a personal loan without ITR documents. However, note that paying tax, if applicable, is mandatory and failure to do that can lead to penalties, imprisonment or both.

Which loan is tax free?

In India, you can claim tax benefits and deductions on the following types of loans:

• Personal loans 
• Education loans
• Home loans
• Car loans

RBI guidelines are in place to ensure loan recovery is handled fairly and with respect. Lenders and recovery agents are not allowed to threaten, pressure or harass you while following up on unpaid loans.

These rules also protect borrower privacy. Recovery agents cannot discuss loan details with family members, friends, neighbours or colleagues. They must carry proper identification and can contact borrowers only during permitted hours, usually between 7 AM and 7 PM. If a meeting is required, the borrower has the right to decide the place. Lenders are also required to share clear account details, explain outstanding dues and offer options such as settlement or grievance redressal wherever applicable.

To know more about this concept, read on. 

When is a Loan Categorised as NPA (Non-performing Asset)?

A non-performing asset simply means a debt, the principal and interest of which has not been paid in the last 90 days. The government has devised the following loan recovery techniques for NPAs:

• Debarred the banks from providing additional facilities to wilful defaulters
• Increased the jurisdiction of Debt Recovery Tribunals (DBTs) to help them focus on high-value cases
• Fundamentally changed the borrower and lender relationship with the Insolvency and Bankruptcy Code (IBC)
• Infusion of capital in PSBs (Public Sector Banks) to raise the coverage ratio, allowing them to make decisions on constrained accounts without affecting their profitability

Loan Recovery Process

The loan recovery process usually starts when you miss a few EMIs. The lender first contacts you to inform you about the delay and give you time to pay. If the payment is still not made, you may receive a formal notice along with options like rescheduling or settlement. If the delay continues for longer, authorised recovery agents or legal steps may be used. But all actions must follow RBI guidelines.

RBI Guidelines on Loan Recovery

The RBI has set clear rules to ensure loan recovery is handled in a fair and respectful manner for both secured and unsecured loans.

• Notice of default: If you miss repayments, the lender must first issue a formal notice. This notice clearly explains the overdue amount and the next steps before recovery begins.
• Fair practices code: Lenders must follow the Fair Practices Code at all times. This ensures transparency, clear communication and fair treatment during the recovery process.
• No harassment: Lenders and recovery agents are not allowed to use threats, pressure or abusive behaviour. Recovery must be done respectfully and without intimidation.
• Regulated recovery agents: Lenders can appoint recovery agents, but these agents must follow RBI’s Code of Conduct. They must carry valid identification and act within approved guidelines.
• Clear settlement process: Lenders should have a structured settlement or repayment resolution process. You must be informed about the available options to resolve your dues.
• Right to take action: If you feel your rights have been violated, you can raise a complaint or take legal action. RBI guidelines support borrowers in seeking redressal.

What are the RBI guidelines for loan recovery agents?

The following are some of the norms notified by the Central Bank for the loan recovery agents:

• The lenders need to publish details of all debt recovery agents on their official website
• The loan recovery agents can’t resort to any intimidation in their efforts to claim the unpaid amount of the loan from borrowers
• These agents can’t call the borrowers beyond 8 AM to 7 PM

Before applying for any form of credit, check if a lender adheres to the RBI guidelines for loan recovery. An RBI-registered bank or NBFC generally follows these norms. Hence, you can get an Instant Personal Loan of up to ₹10 lakhs on Fibe, which is an RBI-registered financial institution with an ISO 27001 certification. 

Our 100% digital process ensures quick loan disbursal within 10 minutes. Download the Fibe Personal Loan App to enjoy quick funding with a simple application process and minimal paperwork.

FAQs on the Loan Recovery Process

1. Can a loan recovery agent come to the home?

Yes, a debt recovery agent can visit a borrower’s home, provided that they follow these RBI guidelines for loan recovery:

• If a recovery agent wants to meet, the borrower must decide the place of meeting
• They can only contact the borrower between 7 AM and 7 PM and must respect their privacy 
• They can’t come to a borrower’s home unannounced and they must carry an authorisation letter for the meeting 

2. How do I stop harassment from loan recovery agents?

If the debt recovery agents harass or trouble the borrowers, they can visit a local police station and file a complaint.

3. How do I take legal action against a recovery agent?

You can take the following legal actions if a recovery agency uses illegal or aggressive tactics to claim the unpaid amount:

• You can file a complaint at the local police station against the agent
• If you do not get relief, you can also approach a civil court and seek legal assistance

Source:

RBI – What is a Non-performing asset 

RBI Guidelines – Rules for Recovery Agents 

RBI Guidelines – Guidelines on the overall loan recovery process

4. What are the RBI guidelines for loan recovery? 

The RBI guidelines for loan recovery require regulated lenders and their agents to avoid intimidation, harassment, public humiliation, privacy intrusion, threatening or anonymous calls and misleading representations. Recovery calls for overdue loans should not be made before 8:00 a.m. or after 7:00 p.m., and the regulated lender remains responsible for the conduct of its recovery agents. 

5. What are the RBI guidelines for recovery agents? 

The RBI guidelines for recovery agents require lenders to carry out due diligence, train agents appropriately and ensure they follow fair-practice and customer-confidentiality standards. Agents must not threaten or harass borrowers, intrude on the privacy of family or friends, or use inappropriate messages or calls outside permitted hours. 

6. Can a recovery agent visit your house without permission? 

A recovery agent may visit a borrower’s residence for legitimate recovery activity if authorised by the lender, but the agent cannot force entry, trespass, intimidate or harass anyone. If you are concerned about whether a recovery agent can visit your house without permission, ask for the agent’s identity and authorisation and report misconduct to the lender’s grievance channel and, where applicable, the RBI Ombudsman or law-enforcement authorities. 

‘Can I buy a car in cash?’ This is one of the most common questions that pops up when you decide to purchase a vehicle. On second thought, if you are wondering whether you should opt for a personal loan for cars rather than paying it entirely by cash, there are several things you need to consider.

For instance, paying in cash would mean dipping into savings, whereas choosing a loan would mean paying in instalments with interest. By understanding such advantages and disadvantages of both options, you can make an informed decision that suits your needs.

Read on to know the pros and cons of buying a car in cash or with a loan and more.

Pros of Purchasing a Car with Cash

Here are some benefits of using your savings for a four-wheeler purchase:

• Simple Process 

There’s not much waiting time involved, as you don’t need to get approval from anyone. All you have to do is choose your preferred brand and model and make a one-time payment.

• No Interest Costs 

Since no credit is involved and you are paying the cost in lumpsum, there are no interest charges. 

• Instant Ownership 

With no third party or financier involved, the car is instantly available under your name. You don’t have to wait a few years or months for it like you would in the case of a loan. 

Cons of Purchasing a Car with Cash

Some limitations of buying a car with your savings include:

• Large Payment 

The cost of a four-wheeler is high, going into tens of lakhs. If you pay for it through cash, you would have to accumulate a significant amount. This can take time and mean that you deplete your savings entirely. 

• Restricted Options

When you pay in cash, you may have to stick to a certain budget. This may limit your options and you may have to make compromises in the make and model of your car. 

Pros of Purchasing a Car with a Personal Loan

Here are some advantages of getting a personal loan for cars:

• Pay in Instalments

With a loan, you pay in monthly instalments and not as a lump sum payment. As such, you don’t have to wait to accumulate the sum or be constrained by your budget. You can adjust the terms and find an option that best fits your finances.

• Wide Range of Options 

In a loan, the amount you get depends on your credit profile. So, you can choose whichever vehicle you like without any compromises. Make sure you get the financing from the right lender. 

• Helps Build a Credit History 

Taking a loan and repaying it on time helps you build a good credit history. This can also help you in future borrowing because lenders offer affordable deals to individuals with good creditworthiness. 

Cons of Purchasing a Car with a Personal Loan

Here are some disadvantages of buying a car with a loan:

• Expensive Option 

Financial institutions levy a certain interest rate on the amount you borrow. So, when you use a loan to buy a four-wheeler, you have to pay interest and other charges. This increases the overall cost and you end up paying more. 

• Risk of Default and Debt Trap 

When the repayment planning isn’t done well, you may be unable to pay the loan on time or in full. This can lead to default or debt trap, which are bad for your finances and creditworthiness. 

Example for Comparison

Here’s a hypothetical example with the following criteria:

• Cost of a car = ₹10 lakhs
• Loan interest rate = 10%
• Repayment tenure = 5 years

Here is how it will affect your finances:

Cost Breakup	Cash	Loan
Cost of the car	₹10 lakhs	₹10 lakhs
Down payment	–	₹2 lakhs
Loan amount	–	₹8 lakhs
Interest amount	–	₹2,19,858
EMI amount	–	₹16,998
Loan and interest amount	–	₹10,19,858
Total cost of the car	₹10 lakhs	₹12,19,858

Which is Better: A Car on Cash or a Loan?

To choose between the two options, you need to consider various factors concerning your finances. These include:

• Your financial situation
• Your future goals
• Your savings
• The car’s cost
• Current interest rates

If you have accumulated enough savings, making your car payment through cash is the best bet, as there’s no debt burden. However, if you don’t have a lump sum payment to purchase your favourite car, getting a personal loan for a car is better. 

If you prefer financing your car purchase through credit, you can opt for an Instant Personal Loan from Fibe. You can enjoy interest rates starting at 2% per month, zero foreclosure charges, and more. Download the Personal Loan App or access our website to get funds easily.

FAQs on Buying a Car with Loan or Cash

Should I buy a car in cash or a loan?

Whether you should buy a car on EMI or cash depends on various factors. Before finalising an option, you must assess the following:

• Your savings
• Your future goals
• The car you plan on purchasing
• Interest rates on the loan

Can I take a personal loan to buy a car?

Yes, a personal loan for cars can offer several benefits, such as:

• No restriction on end-use
• A wider range of options
• Convenient repayment through EMIs
• Opportunity to improve credit score

How can I get a personal loan to buy a car?

You can choose from various lenders and apply online. Fibe is one such lender that offers instant personal loans at affordable interest rates and other benefits.

Leveraging the limits of the traditional credit system, Peer2Peer lending has become popular across the country in recent times. It is a system where:

• People borrow within the communities to meet their financial requirements
• There is no involvement of an official financial institution 

To know more about this new lending system, how it works, the risks involved and more, read on.

What is P2P Lending?

This is a credit system that connects potential lenders with people who require funds. Here are some key features of P2P lending:

• Borrowers pay interest on the loan amount, which helps lenders earn returns
• There is no financial institution involved as the transactions take place between two parties
• By looking beyond traditional sources, Peer-to-Peer credit systems have the potential to drive financial inclusion
• You can get funds for various purposes, including education, debt financing or working capital requirements
• It is an easy and convenient option as you can secure funds through an online P2P lending platform 

How Peer-to-Peer Lending Works?

Here is how this credit system functions:

• It takes place through a website or online portal that directly connects borrowers with lenders
• Potential lenders and borrowers can create an account on this platform  
• The platform reviews the borrower’s profile on various aspects, including their credit scores, repayment history, income, employment, social media activities and more
• Based on the assessment, the platform decides their creditworthiness and assigns risk buckets to them
• Lenders can check this assessment and choose to extend their loans
• The borrower pays interest on loans, which lenders earn as returns
• The interest is determined based on the risk bucket assigned to the borrower
• The Peer2Peer lending platform doesn’t levy a margin on the monthly instalments but charges a fee from both parties 

Who Can Lend through Peer2Peer Lending?

Any individual with a valid PAN card can lend through a P2P credit platform. The following tax-paying entities can participate in Peer2Peer lending:

• Individuals
• Hindu Undivided Families (HUFs)
• Firms
• Societies
• Companies

Risks Involved in P2P Lending

While there are no market-linked risks involved in this credit system, there is a risk of default. This means that there is a possibility of the borrower not repaying the principal and interest. However, in such instances, lenders can issue a legal notice and the lending platform may assist with recovery. 

You can mitigate the non-repayment risk by offering loans to borrowers in different risk buckets. You should also thoroughly assess the risk profile of the borrower before extending the loan. 

Taxation on Peer-to-Peer Lending

Here’s what you need to know about the tax rules for interest earned in Peer2Peer Lending:

• The amount falls under the ‘Income from Other Sources’ category 
• The amount is added to income and taxed as per the slab rate you fall under

Peer-to-peer lending loan is a great credit option to access funds quickly. However, you can also secure quick funding of up to ₹5 lakhs on Fibe. Our Instant Personal Loan has a simple application process and provides quick sanctions at affordable rates. We also have basic eligibility and documentation requirements and levy zero foreclosure charges. Download the Fibe Personal Loan App to get a loan in just a few clicks.

FAQs on How Peer-To-Peer (P2P) Lending Works

How does peer-to-peer lending work?

Here’s how this credit system works:

• It allows individuals and businesses to take loans directly from potential lenders
• No financial institution participates in the process as an intermediary

Is peer-to-peer lending legal in India?

Yes. As per the RBI guidelines, the following tax-paying entities can participate in this lending system: 

• Individuals
• Hindu Undivided Families (HUFs)
• Firms
• Societies
• Companies

What are the advantages of P2P lending?

The following are some of the benefits of this lending system:

• It allows investors to access credit quickly and at lower rates than traditional sources
• Lenders can diversify their lending portfolio by providing loans to persons with different risk ratings

What is the limit of a Peer-to-Peer loan?

An individual can lend a maximum of ₹50 lacs across all Peer-to-Peer loan platforms. However, you can only extend a loan of up to ₹50,000 to a single borrower.