What is the Procedure to Close A Personal Loan?

Closing a Personal Loan involves several steps and paperwork to make sure you have paid off your debt successfully. You need to follow the rules for closing early, if there are any, and be aware of any extra fees. Read on to learn about different ways of the Personal Loan closure process and what you need to know to do it right.  

Why Do You Need to Close Your Loan? 

Following are some of the most important reasons why you need to close your loan: 

• You have no pending dues.
• Availability of surplus funds that can be used to retire the debt.
• Allows for better future investment or loan opportunities with the same lender.
• Better credit score.

Types of Personal Loan Closure

When deciding how to close a Personal Loan, it is crucial to consider the fees, penalties, and advantages. Before choosing, it is wise to talk to the lender and understand the terms of the loan. Here are the different methods for the Personal Loan closure process:
1.    Regular Personal Loan Closure
A regular Personal Loan closure occurs when the borrower pays all the EMIs. After the payment of the final EMI, the borrower must inform the lender to issue a No Objection Certificate and, finally, the Loan Closure Certificate for closure of the loan.
2.    Personal Loan Pre-closure
Personal pre-closure is basically when the borrower decides to close the Personal Loan before the stipulated period. In most cases, the borrower can opt for a Personal Loan pre-closure after one year or pay a minimum of 12 EMIs. For foreclosure of the loan, the borrower might have to pay personal loan foreclosure charges, as per the lender’s policy.
3.    Personal Loan Part-Payment
If the Personal Loan borrower wants to reduce the monthly instalments and tenure of the Personal Loan, he can opt for the Personal Loan part payment. The partial payment amount will be subject to the terms and conditions prescribed by the financial lender.

Personal Loan Pre-Closure Charges

Personal Loan pre-closure occurs when a borrower decides to pre-close in full or part. i.e. before the end of the fixed tenure of the Personal Loan. The pre-closure charges are levied on the pre-closure of the loan by the lender on the borrower. The lender determines the percentage of the borrower’s payments or outstanding loan balance. 
Generally, the pre-closure charges range between 1% and 3%. In case of a lock-in period, you cannot pre-close your loan before the end of the lock-in period. The lock-in period can be between one to twelve months.

The Pre-Closure Procedure of Your Personal Loan

Pre-closing a Personal Loan may not be a difficult task. However, you must understand the process properly while taking a Personal Loan from a lender, as it may differ from one lender to another. There are some basic steps you can follow while pre-closing for a Personal Loan closure process: 

• Step 1: Call the customer care number of the lender to locate the branch near you since a Personal Loan cannot be pre-closed online. 
• Step 2: When you visit the lender, you can approach an executive in the loan section to assist you by explaining the process of pre-closure. Once you are aware of the process, you can request a pre-closure form.
• Step 3: Read the form and carefully fill in all the loan details and personal details that are required. Sign the form after filling it out.
• Step 4: Provide all the necessary identity proof of the loan applications such as PAN card, passport, driving licence, or voter ID.
• Step 5: Once all the documents are submitted, you can make the payment through cheque, demand draft or cash.
• Step 6: If for any reason you are unable to visit the lender yourself, you can send a representative to do so on your behalf. However, your representative must have an authorization letter duly signed by you. He should also carry all the necessary identity proof documents along with him:
• Step 7: After following all the steps, the lender will give you an acknowledgement letter, which should be carefully saved. The final closing of the loan agreement will be sent to you a few days after the loan is closed.

Paying off a Personal Loan is a mental boost as it relieves you of the financial burden that you bear every month. Calculations can help you decide whether paying off a Personal Loan early is a good idea, although it is your personal choice if you want to save your money on interest or get your peace of mind back.

What is Meant by Part Prepayment of a Personal Loan? 

There may be instances when you may be eligible for a bonus or windfall profit from some other source that you wish to use to pay off your loan. However, the amount may not be enough to pay off the entire loan. Then, you can opt for partial prepayment of the loan.
Partial prepayment of the loan will also involve certain penalties. Be careful with them, as lenders may also restrict repeated part-prepayments and allow only a limited number of them. Each of these terms varies between lenders, so it is a good idea to check with them before making a prepayment.
Also, it will not close your loan account. After the part prepayment of the loan, you may be left with some more EMIs, which will have to be paid immediately.

ALSO READ :- Can We Change the Tenure of a Personal Loan? What You Need to Know

Procedure for a Regular Closure of Your Personal Loan

Follow these steps to complete the regular closure of your Personal Loan

• Step 1: After paying all dues, contact your lender and confirm that all dues have been paid. If any amount is pending, pay that amount and make sure there are no dues left.
• Step 2: Once you are sure that there are no more dues, have a meeting with the concerned employee to complete the other basic closure formalities.
• Step 3: You need to carry some documents like - ID proof, and a loan account number (a check if any amount is to be paid). All these documents will be verified by the lender before proceeding with closure.
• Step 4: After verification, the account will be closed. Once you do, make sure to get the NOC from the lender, proof of the complete and final settlement of your loan account.

In case of any query, you can also call the customer care of the lender and seek assistance in closing your loan.

Documents Required for Personal Loan Pre-closure

To ensure that you close your loan application appropriately, you need to know what you need: 

• Personal Loan Account Number: This is usually mentioned on the loan account statement. You can also check the same using an online banking facility or your net banking account if available.
• Identity Proof: Carry your passport, PAN card, Aadhaar card or another government-issued identity document.
• Other Loan Documents: This includes loan sanction letter, loan account statement and other documents issued by the lender.

Things to Do After Personal Loan Pre-closure

Here are some of the most important things you need to keep in mind after your Personal Loan closure process:
1.    Retrieve Original Documents: Ensure you collect all original documents submitted during the loan application from the bank.
2.    Obtain No Objection Certificate (NOC): Request a NOC from the bank confirming full repayment of the loan, including interests. Make sure the NOC includes your name and account number.
3.    Update CIBIL Report: Write to the lender requesting them to update your CIBIL report to reflect the loan closure. Verify that this update is done promptly.
4.    Authorisation for Closure: If you cannot personally visit the bank for closure, authorise someone to do it on your behalf. Obtain prior approval from the bank for this.
By following these steps, you can ensure a smooth conclusion to your Personal Loan process.

Impact of Loan Closure on Credit Score 

Closing a Personal Loan generally has a limited and temporary impact on your credit score. While it does not drastically affect the score, it can influence factors like your credit mix, payment history, and credit utilisation. Maintaining a balanced mix of credit types and a history of timely payments is crucial for a good score. 
However, closing a loan prematurely may reduce the opportunity to demonstrate consistent payment behaviour. Additionally, it is important to be mindful of how closing a loan might affect your overall credit utilisation ratio and the number of open accounts on your credit report. Overall, the impact of closing a Personal Loan on your credit score is typically minor compared to other factors affecting creditworthiness.

To Conclude

There are a few things you should keep in mind for your Personal Loan closure process to ensure that it is done seamlessly. Remember all the terms and conditions, associated charges, and documents required for the closure. 
If you complete the closure process by keeping all these factors in mind, you will be able to avoid any future complications with your loan and maintain a high CIBIL score. Now that you have a comprehensive idea about the loan account closure avail a Personal Loan from Poonawalla Fincorp. Apply now to get loans with zero foreclosure charges.

Frequently Asked Questions About Personal Loan Closure

1.    How to avoid foreclosure charges on their Personal Loan?
Foreclosure charges are typically unavoidable unless you make a specific request to your lender, and they agree to waive them. If you wish to avoid pre-closure charges, it is essential to reach out to your lender and inquire about the possibility of having them waived.

2.    Could there be a reason why my pre-closure request was halted by the lender?
To initiate a pre-closure of your Personal Loan, you must adhere to the terms and conditions set by the lender. If you are facing any issues with the foreclosure, get in touch with our representatives. 

3.    Why is it important to close a Personal Loan?
While it is not mandatory to close a Personal Loan, doing so can offer various benefits to the borrower. Closing the loan allows one to become debt-free sooner and may reduce the total interest payable over the loan term.

4.    Are there any charges for part payments on a Personal Loan?
Typically, financial lenders do not impose charges on borrowers who wish to make part-payments towards their Personal Loan. However, borrowers must still adhere to the terms and conditions outlined by the financial institution to facilitate part payments.

 

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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