A personal loan might be utilized to fulfill unexpected financial needs. A personal loan can be used for a variety of purposes because it is not tied to an end-use requirement like a home loan or a car loan. It can be used to renovate your home, fund a wedding, travel abroad, pay down a home loan, and so on.
What is closing a personal loan?
You must repay a personal loan with interest once you have received it. Closing a personal loan entails repaying the debt in full and receiving a NOC from your lender. You have the option to pay off your debt early, prepay it, or pay off a portion of it.
Furthermore, ending a personal loan in India entails more than simply repaying the debt. You must follow certain procedures in order to properly close a loan.
Methods of closing a personal loan
- You have the option of repaying the loan on a regular basis until it is paid off in full or pre-closing it to significantly lower your debt burden.
- Pre-pay the loan.
- Part prepay the loan.
Closing a personal loan entails more than simply repaying the loan amount; it also necessitates the completion of specific procedures. Continue reading to learn more about how a personal loan is closed.
Procedure for the regular closure of your personal loan
A regular loan closure occurs when a loan is closed after the entire loan term has been completed.
After you’ve paid off your loan in full, you’ll need to complete the following steps to end it:
- It’s a good idea to contact your lender after you’ve paid all of your EMIs to see whether you still have any outstanding balances. If you paid late or missed certain EMIs, you may be subject to a late payment penalty or other costs on your loan. There are personal loan EMI calculator to evaluate the EMI before applying for the loan. Check with your bank to ensure that no payments are owed and that you intend to shut your loan account.
- You can set a date with your lender to complete the remaining formalities and finalize the loan after all of your outstanding debts are paid in full. If everything is in order, your lender will email or mail you a closure certificate.
- You may be asked to provide your loan account number, proof of identification, and a check if any money owed to your lender has not yet been paid. Before closing the loan, the officials will double-check your account and documentation.
- Your loan account will be automatically terminated after the process is complete. However, as proof of your loan closure, you must obtain a NOC from the bank. You have repaid the entire amount, according to the NOC, and there is no outstanding balance.
- You can also contact customer service for assistance in closing your loan using the regular method.
Procedure for pre-closure of the personal loan
Pre-closure or prepayment is when you pay off your full loan before the term ends. Some lenders charge a fee for pre-closing a loan. Pre-closure, on the other hand, will help you minimize your interest rate and debt burden. The methods for pre-closing your personal loan are listed below.
Check for a penalty clause before proceeding with pre-closure, and calculate the benefit you will receive. Pre-closure is more advantageous if you opt to do it earlier in the loan’s term. However, this is the time of year when pre-closure penalties are the most severe. Pre-closure and penalty laws vary for each bank. Take your time here and don’t make a quick decision.
The steps for pre closing your loan are,
- Make contact with your lender.
- Bring identification, a loan account number, bank statements indicating your most recent EMI clearance, and a check to prepay the remaining personal loan amount.
- You must pay a penalty equal to a percentage of your loan amount, as well as the balance loan prepayment.
- The lender will provide you an acknowledgment letter once you prepay your debt with a check or other manner. You must keep this letter safe.
- Your lender will email you the loan agreement once all of the stages have been completed and the loan has been closed.
What is part prepayment of the loan?
You might be eligible for a bonus or a windfall gain from another source that you’d like to use toward repaying your loan. However, it’s possible that the money won’t be enough to cover the entire debt. You can then choose to pay down a portion of your loan.
Part prepayment of the debt will also incur some penalties. Always keep an eye out for them. Lenders may also limit the quantity of part-payments that can be made on a regular basis. Because each of these requirements varies by lender, it’s a good idea to double-check before making a prepayment.
Furthermore, your personal loan account would not be closed as a result of this. After part-paying the loan, you might have a few more EMIs that need to be paid as soon as possible.
Points to consider while closing a loan
- When you applied for a loan, your bank probably required you to produce a few original documents, which you must remember to return when the deal is closed.
- You need also obtain a No Objection Certificate (NOC) from the bank, stating that the loan has been fully returned, including any interest. Your name and account number should be included in the NOC.
- Request that your CIBIL report be updated after the loan is closed in writing. Verify that the work was completed on time as well.
- If you are unable to visit the bank before it closes, you can appoint someone to complete the transaction on your behalf. Only after receiving prior consent from the bank is this possible.