What is the Procedure to Close A Personal Loan?

At times, you need funds for paying off your pending bills, servicing debt, making wedding preparations, buying the latest gadget, or taking a quick vacation. What do you do? You apply for a personal loan, the most flexible funding option available at hand.

Personal loan, as compared to others, offers more flexible options in terms of their usage. Even more, it has various benefits, namely quick disbursement, attractive interest rates, flexible EMIs, and convenient repayment tenure.

Undoubtedly, a personal loan will meet any of your financial needs. But as you get closer to your final EMI repayment, you may have an action plan for your future finances.

You may wish to save your finances, invest in other profitable options, or even opt for other loan products.

But before you go ahead with your financial plan, you must first close your loan. Closing a loan does not mean that you eliminate your loan payments. You need to ensure proper procedural closure.

Why Do You Need to Close Your Loan? Here are Some Reasons

• 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

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 by using an online banking facility or through your net banking account if available.

Identity Proof: Carry your passport, PAN card, Aadhar 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.

Types of Personal Loan Closure

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.

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 foreclosure charges, as per the lender’s policy

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. Personal Loan Pre-Closure charges is 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% to 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.

Procedure for A Regular Closure of Your Personal Loan

• 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.
• Once you are sure that there are no more dues, have a meeting with the concerned employee to complete the other basic closure formalities.
• 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.
• After verification, the account will be closed. Once you do, make sure to get the NOC from the lender, which is proof of 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.

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-closure for a personal loan

• Personal loans cannot be pre-closed online, so you need to find the nearest branch, where you can pre-close your loan. You can call the customer care number of the lender to locate the branch near you.
• When you visit the lender, you can approach an executive in the loan section to assist youby explaining the process of pre-closure. Once you are aware of the process, you can request a pre-closure form.
• Read the form and carefully fill in all the loan details and personal details which are required. Sign the form after fillingit out.
• Once all the documents are submitted, you can make the payment through cheque, demand draft or cash.
• 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 documents along with him:
• Identity proof of the loan applications such as PAN card, passport, driving license, or voter ID.
• Authorization letter from the loan applicant.
• 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 is 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 personal loans 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 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 can you opt for partial prepayment of the loan.

Partial prepayment of the loan will also involve certain penalties. Be careful with them; lenders may also restrict repeated part-prepayments and allow only a limited number of them. Each of these terms varies between lenders, so it's 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.

To Conclude

Finally, there are a few things you should keep in mind when closing a loan. Firstly, at the time of closing, make sure you have all the original documents that you submitted at the time of the loan application. Second, get the NOC from the lender and ensure that it has your name and your loan account number on it. And finally, submit a written request to your lender to update your CIBIL score post repayment and ensure that it is done.That’s all you need to know to close your loan.