When closing your Personal Loan account, you can either complete a regular Personal Loan closure after the full tenure or opt for Personal Loan foreclosure by repaying the outstanding loan amount early. Each option requires you to follow a proper process to avoid penalties and prevent any negative impact on your credit score.
Below, we explain how to close a Personal Loan and highlight the key points to consider before and after closing your Personal Loan account.
Why Closing a Personal Loan Properly Matters
Having a closed Personal Loan account indicates that the loan has been fully repaid. Many borrowers opt for a Personal Loan foreclosure to reduce their overall interest burden, subject to applicable foreclosure charges.
Successfully closing a loan after maintaining a good repayment record can improve your credit profile and may strengthen your eligibility for future loans. It is also important to ensure that the closure status is accurately updated in your credit report to avoid discrepancies later.
Types of Personal Loan Closure
Before proceeding, borrowers should understand the available types of Personal Loan closure. Depending on the loan agreement, certain options such as foreclosure or part payment may attract applicable charges.
Regular Personal Loan Closures
When a loan applicant repays their monthly EMI until the end of the loan tenure, it is a regular Personal Loan closure. Once the entire loan amount is repaid, the lender provides a loan closure certificate and an NOC (No Objection Certificate) to confirm that the Personal Loan account is closed. Regularly closing a Personal Loan will usually not incur foreclosure fees.
Personal Loan Foreclosure
Personal Loan Foreclosure is defined as paying off the debt early (before the completion of the loan tenure). Foreclosure fees may apply depending on whether your loan is a fixed or floating rate and the lender’s policy. You must carefully assess the foreclosure statement and compare the expected fees to the remaining interest cost. This ensures you don't pay extra on Personal Loan foreclosure fees.
Personal Loan Part Payment
When a borrower wants to reduce their outstanding balance before paying it off in full, they can make a partial payment. The partial payment reduces your effective outstanding balance and may also reduce your loan term. The number of times you can make partial payments may be limited, so you should review the pre-payment statement carefully.
Personal Loan Pre-Closure Charges
When a borrower repays their loan early, the lender charges the borrower a fee for doing so. This fee compensates the lender for the lost interest income. Typically, it ranges between 1% to 3%; however, it may vary based on lender policy.
The foreclosure charges vary based on the terms and conditions of your loan. Therefore, you should compare the fees with the interest burden you would save by repaying your loan early.
The Personal Loan Pre-Closure Procedure
Although the exact steps may vary slightly from one lender to another, the following process is generally applicable when repaying or closing your loan.
Step 1: Contact Customer Support
Contact your financial institution and request that they provide you with a pre-closing statement that reflects your outstanding loan balance and includes all other relevant details. This is important because it will provide you with assurance that you are eligible to prepay your Personal Loan.
Step 2: Visit the Branch
Some lenders allow online pre-closure, while others may require a branch visit depending on policy. Therefore, you will need to bring all required documents, like your PAN Card, to your local branch to complete a prepayment on your Personal Loan.
Step 3: Fill the Pre-Closure Form
Fill out the pre-closure form accurately, ensuring that the personal and loan account numbers are both accurately listed.
Step 4: Submit Required Documents
In order to help their lender process the request for a Personal Loan pre-closure, the borrower will need to submit all necessary documents. This may include the Personal Loan account number, identity proof, loan-related documents, and the loan account statement.
Submitting these Personal Loan closing documents helps ensure a smooth and hassle-free loan closure process.
Step 5: Make the Payment
The borrower may make their payment in the form of either a cheque or a demand draft, depending on the policy established by their financial institution. Demand drafts provide the borrower with proof of payment made directly to a specified financial institution and also help to ensure that the transaction is recorded as clearly as possible.
Step 6: Receive Acknowledgement
Once the borrower has made their payment to their lender, the lender provides the borrower with a written acknowledgement. It confirms that the pre-closure process has started officially.
Step 7: Obtain Closure Documents
Once the lender verifies that the pre-closure process has been completed successfully, they issue a Loan Closure Certificate. They also provide a No Objection Certificate (NOC) for the loan, which indicates that the borrower has fully repaid the outstanding amount.
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 Account
To properly finalise your Personal Loan account after completing all required EMI payments, follow the steps below.
Step 1: Confirm Outstanding Debt
Ensure that all EMI payments have been cleared prior to reaching out to the lender. If there are any outstanding payments on your loan account, you will not be allowed to proceed to close your loan account.
Step 2: Submit Closure Request
Contact your financial institution's lending unit or its loan department to request closure of your Personal Loan. Make sure you provide them with your Personal Loan Account Number as well as your loan applicant account number.
Step 3: Provide Required Documents
Submit documents required for personal verification, including PAN Card, identity proof, and loan-related documents and other loan details.
Step 4: Collect Closure Certificates
After processing, collect the loan closure certificate and the No Objection Certificate (NOC). These documents confirm that your loan account has been officially closed.
Steps to Follow After Personal Loan Pre-Closure
After completing loan closure, borrowers should complete certain follow-up steps.
Retrieve Original Loan Documents
You should obtain and keep all the original loan documents that you submitted with your loan application, so you will not have any disputes later on.
Obtain Objection Certificate NOC
You must request an NOC from your lender showing that your loan has been paid in full and is closed out.
Update Credit Records
Once your loan is fully repaid, confirm that the lender has updated the closure status with the credit bureaus. This ensures your credit report accurately reflects that the loan has been settled.
Review Credit Report
After your loan has been paid off, you should continually review your credit report. This will help ensure that your closed loan appears correctly in your credit history.
Read Also: Major Steps to Follow to Avoid Missing Personal Loan EM
To Conclude
Borrowers should understand the process of closing a Personal Loan to manage their finances responsibly. Whether you close your Personal Loan after completing the full tenure or choose pre-closure by repaying the outstanding amount early, following the correct procedure is essential. Being aware of your loan agreement terms and the required documentation will help ensure a smooth and timely loan closure process.
Poonawalla Fincorp's Personal Loan offers a transparent loan agreement, no hidden charges and competitive interest rates. Apply now if you want to take a new loan or transfer your loan for better terms!
FAQs
What can I do to avoid foreclosure costs on a Personal Loan?
Foreclosure charges vary by lender and loan type. Check your loan agreement to see if charges apply and whether any waiver options are available. In some cases, especially for floating-rate loans, foreclosure charges may not apply.
Why would a lender delay my request for pre-closing?
Financial lenders may delay your request for pre-closing if they do not receive all required documents or if their lock-in period has not yet expired.
Would closing a Personal Loan increase my credit score?
If you have maintained a good repayment history, closing your Personal Loan can positively impact your credit profile. However, the exact effect on your credit score depends on your overall credit behaviour and existing liabilities.
When closing a Personal Loan, what forms of payment does my lender accept?
Most lenders accept payment through electronic transfer, such as NEFT, RTGS, net banking, or cheque or demand draft, depending on their policy.
Is it better to do a partial payment on a Personal Loan as opposed to foreclosing the Personal Loan?
Part payment reduces your outstanding principal gradually and may lower your EMI or tenure. Foreclosure eliminates the loan. The better option depends on your financial goals, available funds, and applicable charges.
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. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply