Are you someone, who purchased a dream home a few years back? Then, home loan repayment might be a matter of concern for you. Not only does making repayments look tough but meeting your financial needs may seem complicated sometimes. If you want to finish your debt faster, then
Of course, you want to get rid of debts as soon as possible. And pre-closure of your home loan is indeed the most convenient way to lead a debt-free life. There is no denying that repaying a loan faster can bring you a sense of satisfaction. But, have you ever
wondered whether pre-closure of home loans could affect your credit score or not?
The answer to this question is that it won’t affect your credit score in any way. However, the credit bureau notices everything and shows your credit behavior in your credit history. As you pay the loan in time, your credit score will get an instant boost.
Pre-closure of a home loan boost your credit score
People generally go for pre-closure of home loans to get rid of the burden of finances. However, most people don't think of their credit score while repaying home loans faster. Another major advantage of pre-closure of home loans is that their credit score will be improved gradually and they can easily unlock the doors of better borrowing opportunities in the future.
You will save on interest rates
The rates of interest charged by the lenders are something that causes unnecessary stress to a borrower. When you consider pre-closure, you will save more on interest rates and this is another advantage of considering faster repayment of home loans. When you pay a large amount in one shot payment, you will avoid paying extra charges. You will not just save on interest rates but also avoid paying processing fees that bring you some sort of relief. A small decrease in interest rates can make a huge difference to the final amount you are required to pay.
Pre-Closure Defines You As a Responsible Borrower
Among all the repayment options, pre-closure has become the most popular option. When you are paying a home loan installment before the scheduled time, it will be recorded in your borrowing history. This practice shows how responsible you are as a borrower. You can prove your creditworthiness in the future and unlock the doors of borrowing in the future.
Pay on Time or For-Closure?
Now, you have two options available to keep your credit score in tip-top shape. You should choose either to pay the installment on time or for-closure. Paying home loans back on time will boost your credit score while for-closure can save you bucks on the total repayment amount. Both options are good to go with. However, which option you should consider? Well, you don’t have to look confused. All you need to do is to consider your financial condition and ability to repay. Only then, you will be able to make the right choice. It solely depends on you which option you want to choose. After all, it is all about your ability to afford timely or pre-payment of home loans.
Don’t Misunderstand Pre-Closure to Loan Settlement
Most people are weak at understanding financial terms. They generally misunderstand pre-closure to loan settlement. But, you have to understand that both the terms are different. Pre-closure of home loans might mean that you want to get rid of the burden of debts and this is why you want to close your loan repayment soon. On the contrary, loan settlement is a different term. It is when you are not capable of making home loan repayments on time and you will ask your bank for loan settlement. The basic difference between the two lies in your ability to afford repayment.
Which Affects Your Credit Score- Loan Settlement or Pre-Closure?
Well, both loan settlement and pre-closure of home loans put emphasis on your credit rating. However, pre-closure always boosts your credit score while loan settlement puts an adverse impact on your credit score. Loan pre-payment is a good sign while loan settlement should be your last resort when you are unable to manage your finances. When the situation crops up where you have only loan settlement as an option, you should consult with your bank and ask for extending the repayment tenure. Your lender will understand your situation and stretch out the repayment tenure that does not affect your credit score much.
Bottom Line
Repayment home loan faster has a good impact on your credit score while loan settlement is considered bad for your borrowing record. If you are wondering how to get rid of the burden faster, you should consult with a loan advisor to make the right choice. Now, don’t panic! Connect with financial advisors and seek better solutions whenever required. This way you can keep your finances under control.
