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.