Have You Really Closed Your Loan

The importance of securing a NOC after loan closure

Anyone who has ever taken a loan can understand the silent stress of a loan. It creeps in the minute you sign the mountain of papers pertaining to the loan and starts living with you for what seems an eternity. For the next few years, your loan feeds off on all your extra savings, hard-earned bonuses, the money saved for holidays and things you desire. When you finally manage to say goodbye to that loan, it is no surprise that one feels lighter, exuberant and even heady!

A weight has just lifted off your shoulders and you heave a sigh of relief that there are no monthly installments to be paid. You are relaxed and happy that you can finally call your home or your bike your own. The reality is a little different. The process does not just end when that last equated monthly installment leaves your bank account. As it turns out, when you finish re-paying your loan, you are still one step away from a full “closure”. You cannot fully claim your house or your bike as your own until you get a ‘No-Objection Certificate’ (NOC) from the financial institution. An NOC is a legal document which proves that you have paid off your debt and your loan is now settled. Unfortunately, many a times, a lot of relieved families & individuals forget to obtain such an important document.

If you have not bothered till now to get that document from the lender, you could be in for a rude shock even years from now. There have been several cases where people have received legal notices from their lenders years after repaying their loan amount. A drop in credit score (which means you are not getting another loan easily) and legal hassles are the immediate fallouts of this situation.

Without a proper document that credibly verifies that you actually closed the account, you will have an uphill task of proving your ownership rights. It will cost you more time, effort and money that you bargained for and you will simply wish you could go back in time to change things and pick up that little document called NOC or No Objection Certificate (or No Dues Certificate) from the lender.

We have listed here some good practices which can save you from major inconvenience in the long term

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.

Secure your NOC right after you close your loan

When you take an NOC from your lender, you are securing long term proof about your entire loan repayment. If your lender ever makes a mistake years down the line and thinks you have unpaid dues, this letter will help clarify the issue in a matter of minutes. Without it, you may be on the receiving end of a legal battle and a long hunt for all other documents of proof.

When you get an NOC, it should mention your name, loan account number, two-wheeler details and the date of the loan closure clearly. Make sure that you have all pages of your original documentation. When you submit your original documents to the lender, it often changes hands within the organization departments like the branch, its head office, legal department, verification department and more. Ensure that you get the correct documents back and the NOC details are correct. This is a process you need to get right at the time of receiving the documents as later it may be difficult to get the details corrected.

Need more reasons as to why an NOC can come handy?

Here is a quick list -

• 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

When you take a home loan or a two wheeler loan, you essentially pledge your asset for the loan, while retaining its ownership and enjoying benefits. This practice is called hypothecation. This means you can move into and start living in the house for which you are still paying the lender. Or you can use your two-wheeler for any personal or professional work while you are still paying for buying it.

The catch here is that if you miss repaying the loan as per the lender’s terms of agreement, they will have the right to seize your asset. Because hypothecation offers the said “security cover” to lenders, they give the bike loan at a lower interest rate than an unsecured loan. Note that most lenders may charge you some pre-payment fee if you decide to foreclose the loan.

When you buy a two wheeler on a loan, the hypothecation of the vehicle is stated in the Registration Certificate (RC) book. When you prepay your loan you will need to go to the Regional Transport Office (RTO) to get the hypothecation removed.

To do this carry the lender NOC, Original RC, Original form 35, valid copy of your insurance, PUC certificate, attested copies of the Pan Card, address proof and your trade certificate.

Once you have all the documents lined up, find the verification officer in the RTO to be doubly sure that you have everything you need. Post this, the officer will let you know the date and time for your next visit in between which they will be checking the authenticity. After everything is verified, you will be called by the local RTO authority to make some basic fee payments and you should be able collect your book without any problem.

As it turns out, closing a loan is as important as opening one. So before you welcome the worry-free days, make sure you get the NOC from your lender. We understand the importance of handing out NOCs and would be happy to answer your questions on how to get one.