Money decisions within families often suffer due to lack of clarity. A recent case shows how understanding your EMIs (using even a simple EMI calculator) can prevent major financial losses.
A family member had unknowingly taken a high-cost ₹8 lakh loan at 18%, while another family member had a ₹5 lakh fixed deposit lying idle at 7%. This mismatch triggered a simple but crucial question:
Should you foreclose an expensive loan or continue EMIs while keeping an FD?
This article breaks down the exact math behind that decision.
A borrower took an ₹8 lakh loan from an NBFC, even though he only needed ₹3 lakh. To this, the lender added ₹20,000 for insurance and ₹30,000 as processing fees. The remaining ₹5 lakh, which was not required, was placed in a fixed deposit instead of being used to reduce the loan amount.
The situation became more complex when the lender told the borrower that the foreclosure penalty for the loan is around ₹50,000. This exacerbated his financial worries.
To understand what is financially wiser, it helps to compare the loan cost and the FD returns.
| Item | Result |
| Interest payable on Loan (3 yrs @ 18%) | ₹2,40,000 |
| Interest Receivable on FD (3 yrs @ 7%) | ₹1,10,000 |
| Net Loss | ₹1,30,000 |
| Prepayment Penalty | ₹50,000 |
| Net Savings if Loan Closed | ≈ ₹80,000 saved |
It is clear that if the borrower chooses to continue paying EMIs, he will lose ₹1,30,000. However, if he chooses to pay the prepayment penalty and closes the loan, he can minimise his losses to the extent of ₹80,000 (₹1,30,000-₹50,000).
Before making the payment, it is crucial to verify the exact foreclosure charge in the loan sanction letter. Bajaj Finance normally charges up to 4.72% including taxes. On an ₹8 lakh loan, this works out to about ₹37,760, which is lower than the ₹50,000 initially assumed.
After settling the loan, one must collect the No Due Certificate, confirming that all obligations are cleared.
Foreclosing the loan is financially smarter in this situation. The interest cost on the loan is far higher than the returns from the fixed deposit, and the penalty does not erase this advantage. Closing the loan helps stop future interest loss and removes an unnecessary burden from the family’s finances.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Published on: Nov 24, 2025, 1:14 PM IST
We're Live on WhatsApp! Join our channel for market insights & updates
Get the link to download the App
