Many people keep paying EMIs without knowing they can close a car loan early. Paying off the loan in one go is called car loan foreclosure. It can cut the total interest you pay on the loan and give you full ownership of the car sooner. It can also free up monthly money for other needs and make your finances easier to manage.

This article explains what car loan foreclosure means, how the process works, the benefits you could get, the fees to watch for, and the things to check before you decide to pay off your car loan early.

What is a Car Loan Foreclosure?

Car loan foreclosure means paying off your loan in full before the end of its original tenure. Instead of continuing with monthly EMIs, you settle the remaining principal and any applicable interest or charges through a single payment. This action allows you to own your car sooner.

Borrowers often choose foreclosure to save on loan interest costs or reduce their debt burden. It’s a straightforward way to achieve financial freedom faster.

The Benefits of Closing a Car Loan Early

Paying off your loan before the tenure of your car loan ends can bring financial and personal advantages, including:

• Significant savings on cumulative interest.
• Earlier release of car hypothecation and ownership transfer.
• Lower overall debt burden and improved cash flow.
• A positive impact on your credit record.
• Greater financial confidence and flexibility.

To enjoy these benefits, consider looking for a financier that values customer interests. SK Finance’s customer-friendly foreclosure policies ensure borrowers can close car loans early with ease, transparency, and complete peace of mind.

What to Keep in Mind Before Foreclosing Your Car Loan

Closing your car loan early sounds simple, but a few checks are essential. Check if there’s a small foreclosure fee, make sure you have enough money, and confirm the financial institution will give you all the needed documents. If you do this, you can end your loan without stress.

Here are things to check before initiating car loan foreclosure:

• Charges: Consider the repayment fees or car loan foreclosure charges applicable under your loan agreement.
• Cash flow: Ensure you have sufficient liquidity to avoid compromising emergency funds.
• Best timing: It's best to initiate car loan foreclosure near your EMI date to reduce interest payout.
• Compare options: Ensure closing this loan is the smartest financial move, especially if you have other higher-interest debts.
• Paperwork: Get a clear No Dues Certificate and hypothecation release.

We, at SK Finance, make this process simple, with transparent charges and quick documentation, helping you close your loan easily. So, if you want a car loan, check out the charges and the EMI you need to pay using this simple calculator.

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Car Loan Foreclosure Charges

When you pay off your car loan early, the lender might ask for a small fee. This is to cover their process work and any interest you haven’t paid yet. There may be other costs involved, which you should consider if you are closing your vehicle loan early.

• Prepayment fee: This is to compensate the loan provider for the interest they would have earned if you hadn’t closed the loan early.
• Processing fee: Money for the bank or finance company to calculate your final payment.
• Paperwork fee: Money for giving you official papers like the No Dues Certificate and hypothecation release.

SK Finance charges 5% of the principal outstanding as the loan foreclosure charge, which is quite reasonable.​​ You can check out our complete schedule of charges related to car loans for transparency.

How the Car Loan Foreclosure Process Works

Foreclosing your car loan is easier than many people think. It basically involves paying off the remaining loan amount in one go instead of continuing with EMIs, and most loan providers allow this for a fee. Here’s how it usually works:

Step 1: Inform the Loan Provider About Foreclosure

Tell your bank or finance company that you want to close the car loan early by visiting the branch, over a phone call, or through the financier’s online portal or app.

Step 2: Get the Loan Settlement Amount

The loan provider calculates the exact amount you need to pay for foreclosure. This usually includes the remaining principal, interest till the date of closure, and any applicable charges. They will provide a statement or quote for this amount.

If the amount is more than you can pay in a lump sum, you can also consider making part-payments of your loan.

Step 3: Make the Payment Required for Foreclosure

Once you agree, you need to pay the settlement amount. You can usually pay by cheque, online transfer, or any mode accepted by the loan provider.

Step 4: Receive Loan Closure Documents

After payment, the financier issues a No Dues Certificate and helps remove hypothecation from the car’s registration. This is basically the proof you’ll need to show that your car loan is closed.

You Might Also Want to Know

Which is better, prepayment or foreclosure for a car loan?

Car loan foreclosure is better if you can pay the full loan amount immediately. It will help you save maximum interest.

However, if you can only make partial payments, car loan prepayments will suit you more and help you reduce your loan tenure or EMIs. It is advised that you ask the financier to reduce your loan tenure during prepayments to pay off your car loan faster.

What are the charges for foreclosure on a car loan?

In India, foreclosure charges for a car loan typically range between 2% and 6% of the outstanding principal amount. However, the amount varies based on the loan provider and how long you’ve paid EMIs.

Ready to Close Your Car Loan Early?

Foreclosing your car loan can reduce interest costs and free up your monthly budget for other needs. It also helps you fully own your car sooner. 

Knowing the charges and planning your payment makes the process smooth and stress-free. SK Finance provides clear policies, easy documentation, and friendly assistance to borrowers. To learn more about early repayment and make your loan foreclosure simple, visit your nearest SK Finance branch today.