Legalities behind distress preclosure of Commercial Vehicle Loan



I have a small query related to loan preclosure process. I have taken a commercial vehicle loan from HDFC Bank for Rs.558094 @14.64% fixed interest rate. The EMI comes to ₹16190. We have paid 5 EMIs till date. In these 5 EMIs interest recovered by Bank is ₹32885 and principal recovered is ₹48080. I plan to approach the bank for preclosure as I am selling away the said vehicle due to inability to repay the loan and sell the vehicle at loss to a probable buyer. Now my loan outstanding principal is ₹510000. My query is that for the 45 month period, the complete interest component comes to ₹170456. And per month it comes to ₹3788. Hence for a period of 5 months it comes to ₹18940. But due to bank rules of early recovery of outstanding interest the bank has recovered ₹32885. Now if I preclose the loan after 5 months, shouldn’t the bank give me back the interest difference of ₹32885 which it recovered and ₹18940 which is actual interest for the 5 month period. They also want to charge a 4% penalty for preclosing and don’t want to provide refund of excess interest collected. Please help me with it.

Also when I approached the bank for preclosure purpose, I was told that only after first 6 EMIs paid that I can preclose the loan. The documents I have w.r.t loan doesn’t nowhere mentions anout such condition. One document mentions abt preclosure/foreclosure charges for two conditions i.e., Closing within 1 year from first EMI and Closing after 1 year from first EMI. If six months were to be correct, it should have been " Closing after six months upto 1 year from first EMI". Also one document has a table with foreclosure conditions n charges for various types of loans. Even there it shows the charges of preclosure for within 6 months. As you can see in attached documents, the table mentions clearly for Personal loan as well as car loan, preclosure within 6 months isn’t allowed. My loan document mentions at two places regarding the loan being commercial purposes.




Hi Vijay,

Thanks for writing to us. It is not possible to recover interest paid out to the bank. In case of loans, the interest portion of your EMI is always higher in the initial years. When it comes to pre-closure, most banks do not allow pre-closure of loans before 6 months. Ask your bank specifically where the pre-closure clauses are there in the loan agreement. Sometimes, the loan agreement itself will say that pre-closure charges are subject to change. We suggest that you talk to your bank to better understand the terms of your loan agreement.

BB Expert