Have You Really Closed Your Loan? Understanding the Complete Loan Closure Process
Clearing a loan brings a big relief, especially when it’s on time. But, the loan journey does not end with the last EMI. A critical step still has to be carried out: obtaining a No Objection Certificate or NOC from the lender. This document verifies that the borrower has repaid the loan in full. Furthermore, it releases the lender’s charge on the security offered against the loan, which may be property, gold or a vehicle. Remaining careless about the NOC can lead to shocking legal or financial issues in the long run.
Let us see why getting an NOC is important.
• Proof of Loan Closure: It ensures that there is no due in the loan account.
• Protection of a Borrower’s Ownership Rights: This is especially important in relation to secured loans, which are collateralised by assets like properties or vehicles.
• Avoid Credit Score Issues: A loan paid without an NOC could have a negative impact on your credit report.
• Avoid Legal Issues for the Future: Claims or recovery notices might affect you without NOC.
• A Requirement for Other Loans: When you apply for other loans, the lender will require NOC for the previous loan.
What is a No Objection Certificate (NOC) After Loan Closure?
A No Objection Certificate (NOC) is a legal document that is issued by your lender stating that you have fulfilled your obligation to repay your loan and that the lender has no claims against you. The NOC is legal proof that your loan has been closed.
Importance of securing a NOC & how to apply for the same
The closure of a loan – especially a home loan – is considered to be one of the three biggest achievements for a normal person (The first two being finding the first job and getting married).
Once you finish repaying your loan, you can write a letter to your lender with the requisite account and payment details.
For example, if you are requesting an NOC for your Two-Wheeler Loan, it should contain details including the name (of the borrower), the loan account number, make and model of the two-wheeler, its registration number, engine number and chassis number.
You will also have to mention the specific reason for the collection of NOC – in this case it will be the complete repayment of your loan amount.
Along with your application you will need to submit a copy of the RC book with hypothecation in the name of the lender and a letter from the dealer and / or insurance company.
Ideally, your lender should then respond to you within 7 working days with your original documents and NOC.
Also Read : Planning to Pre-Close Your Personal Loan? Check When It Would Be a Good Option
Documents Typically Required for NOC Issuance
- Loan repayment statement or final payment receipt
- Copy of loan agreement
- Registration Certificate (RC) book with hypothecation details (vehicle loans)
- Insurance papers and Pollution Under Control (PUC) certificate
- Proof of identity and address
- Application letter for NOC
How to Apply for an NOC – Step-by-Step Guide
Follow these steps to apply for an NOC without hassle.
- Write a formal application to your lender requesting the NOC.
- Include essential details like borrower name, loan account number, asset details (e.g., vehicle make/model, registration number), and reason (full repayment).
- Submit supporting documents, such as your Registration Certificate (RC) book (for vehicle loans), insurance papers, and loan payment receipts.
- Request acknowledgement and timeline for issuance (usually within 7 working days).
- Follow up regularly until you receive the NOC and all original documents returned.
Checklist: Key Actions to Complete Your Loan Closure
- Pay your final EMI in full
- Request and receive your No Objection Certificate (NOC)
- Collect all original documents from lender
- Remove hypothecation entry from Registration Certificate (RC) or property records
- Cancel any post-dated cheques or ECS mandates linked to the loan
- Verify loan closure status in bank statements
- Check credit report and dispute any errors
- Safely store all loan closure documents
Also Read : What are Foreclosure Charges on Personal Loan?
Why Keep Your NOC Safe?
Here’s why should you keep your NOC is safe custody:
- No NOC can dent your credit score
Receiving a NOC is evidence of the formal closure of your loan. If an NOC is not shared by your lender, it might mean that some dues are pending from your end. Non-payment of these dues might lead your lender to report to the credit bureau, which will adversely affect your credit score.
- NOC is a must for a Two-Wheeler Loan
In case of a Two-Wheeler Loan, an NOC is a must when transferring the vehicle during the sale process. You will need to show this to the local authorities when you are selling the vehicle too.
- Submit the NOC to the insurance company
Though we tend to think of the insurance company only during a claim, it is important they are kept in the loop about your loan completion too and have a copy of the NOC.
- The final move you should not miss at any cost – Hypothecation
With hypothecation, you pledge an asset (for example, a vehicle or property) as collateral to a lender while you retain ownership and use it. The lender has a legal right to this asset until the loan is fully paid. This arrangement poses little risk to the lender for the sanctioned loan. It provides repayment security to the lender as they can seize the asset if payment is not made.
Important Benefits of Hypothecation with Respect to Closing Loans:
Protects the Lender’s Interest: Hypothecation allows a lender to provide relatively lower interest loans because such loans are secured with collateral unlike unsecured loans.
Legal Evidence of How the Loan is Secured: The asset is considered hypothecated when marked in relevant documents such as the Registration Certificate (RC) for vehicles or property documents of home loans.
Next Step Post Loan Payment: Once you pay your loan completely, the lender is supposed to release the hypothecation on the loan collateral. This is necessary to prove that the lender no longer has ownership of the collateral or asset.
Removal of Hypothecation: After repaying the loan, you must go to the concerned authority (for instance, the Regional Transport Office for vehicles) with your No Objection Certificate (NOC) and other relevant papers to remove hypothecation from the records of the asset. This changes the status of ownership in the borrower’s favour, permitting the asset to be transferred or sold freely.
Complete Ownership Rights: The process of hypothecation removal confirms your ownership with no lien or legal holding by the lender.
Conclusion
Timely repayments are equally important as completing your loan closure correctly. Achieving financial peace of mind and ensuring safety for the future involves obtaining your No Objection Certificate (NOC), clearing hypothecation, and confirming all closures in credit records. After making the final payment, don't forget these crucial steps. Reach out to Hero Fincorp if you require additional support related to loan closure or NOC issuance.
Frequently Asked Questions
1. How long will it take to get an NOC after loan closure?
After you repay your loan, it can take seven to 14 days to obtain an NOC or No Objection Certificate. Some lenders may offer online facilities, which can help you get the NOC faster.
2. What happens if I don’t get an NOC?
In case you do not get your NOC, your loan account will remain open. This will create problems in hypothecation removal and also affect your credit score.
3. Can I remove hypothecation without an NOC?
No. To ensure hypothecation removal from your vehicle's Registration Certificate or RC, you will require a no objection certificate from your financier indicating no dues outstanding.
4. Will my credit score improve after loan closure?
Yes, if you repay your loan on time and get the NOC, it will reflect in your credit report. This will improve your credit score and make you eligible for future loans and credit cards.
5. Are there any charges for obtaining the NOC or hypothecation removal?
No, lenders do not charge for issuing the no objection certificate, but your RTO may charge a nominal amount for hypothecation removal and issuing an updated RC.
Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.
About Hero Fincorp
Hero Fincorp offers a wide range of financial products including Personal Loans for personal needs, Business Loans to support business growth, Used Car Loans for purchasing pre-owned vehicles, Two-Wheeler Loans for bike financing, and Loan Against Property for leveraging real estate assets. We provide tailored solutions with quick processing, minimal paperwork, and flexible repayment options for smooth and convenient borrowing experience.
