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Things to Know While Closing a Personal Loan
Kabir Malhotra is a professor in one of the renowned colleges in Meerut. A few years ago, he availed of an online personal loan to pay for his daughter's engineering college fees. Now that his daughter has completed her engineering course and he has also received a handsome increment in his salary, he wants to pre-close his personal loan. However, Kabir is unfamiliar with the personal loan closing procedure and is unaware of personal loan closure charges. If you too have faced such a situation or are planning to foreclose your personal loan, then here is everything you must know about the personal loan account closing procedure. 
 
Closing a personal loan? Here's all you need to know.
 
Most borrowers are unaware of the personal loan foreclosure process. Once they have saved enough money, they just go to the lender, deposit the money, and pay off their debts. This is not always a bad idea, especially if you have a poor credit history. But still, if you are planning for a personal loan closure online, you must keep a few things in mind:
 
1. Types of loan closure:
 
  • Regular closure: 
Under this type of closure, the borrowers pay their EMI regularly until the end of the repayment tenure specified in the loan agreement. Here, the lender does not impose any additional fee or penalty. The personal loan closing procedure remains the same as it is mentioned in the loan agreement. 
 
  • Pre-closure: 
If you have received some additional funds or have received an increment in your salary, you may want to save a significant amount of money on interest by closing a personal loan early. Before you do so, keep in mind that most financial institutions have a lock-in period for personal loan foreclosures and they charge an additional cost for closing a loan. However, under the RBI's new directive policy, financial institutions are not allowed to charge pre-closure penalties on floating loans. 

 
               Also Read: Closing Your Loan Account?  Do These Things First
 
  • Bad loan closure: 
Under this, if the borrower fails to make interest and principal payments over an extended period of time, the financial institution will write off the loan. Such a closure has legal ramifications and the borrower may face charges under the IPC section or be forced to file for bankruptcy.
 
  • Part-prepayment: 
If you have received a bonus or your investment has yielded a higher return, you may wish to put that money towards your loan repayment. Paying an EMI higher than usual is what defines part-prepayment. Part-paying your loan lowers your EMI or shortens the repayment period. You will, however, have to pay a small prepayment penalty.
 
2. Know the charges: 
 
As previously stated, a personal loan finance company levies a foreclosure penalty on closing a personal loan. They also charge an additional fee for part-prepayment as well. Therefore, consider all these expenses before closing a personal loan before the due date.
 
               Also Read: Opt for Personal Loan Prepayment and Partial Payment for Shorter Loan Tenure and Lower EMIs

 

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3. NOC process: 
 
A No Objection Certificate (NOC) is proof that you have settled all your outstanding dues and pending charges with the personal loan finance company. Therefore, when opting for personal loan closure online, make sure you understand the process of getting a NOC. Double-check your name, loan account number, address, and other relevant details related to personal loan foreclosure. NOC helps in avoiding any legal discrepancies with the concerned financial institution. 
 
4. Credit upgrade: 

After closing a personal loan, make sure that your lending institution has informed the credit agency about your loan repayment. Most of the time, the lender's update procedure is delayed, which means that if you need money quickly after a personal loan foreclosure, your credit history will show an outstanding loan, and your loan application might get denied. Always check your credit score online within a few days after closing a personal loan; if it has not been updated, ask your lender to do so.
 
How to close a personal loan early? 
 
If you want to close your loan before its binding due date, you just have to follow a few basic steps. 
 
  • Inform lender: 
Pay a visit to the personal loan finance company from where you have obtained a personal loan. Inform them that you would like to close your personal loan, and seek information regarding the fees and penalties that come with a personal loan foreclosure.
 
  • Submit documents: 
Carry all the relevant documents including the account passbook that reflects the EMI debit from your account. You must provide a photocopy of all essential documents to the lender, along with a letter requesting a loan closure. If you are not sure how to write a loan closure letter, look online for a loan closure letter format or a sample letter for closing a loan account.
 
  • Acknowledgement slip/NOC certificate: 
Once you have settled all your outstanding dues, the lending institution will issue you an NOC. The NOC or acknowledgement slip will include all the loan clearance information. Maintain a proper record of your NOC for future use.
 
What are the documents required for closing personal loans? 
 
  • Letter requesting a loan closure along with a loan closure form. You may also opt for a personal loan closure online
 
  • Identity and address proof such as PAN Card, Aadhaar Card, Passport, Voter ID etc. 
 
  • A bank statement that displays the instalments paid to date. 
 
  • Cheque or demand draft for settling outstanding loan balance. 
 
Will my lender halt me from closing a personal loan before the binding due date?
 
Every lending institution has its own set of rules and regulations. Most lenders would not let you foreclose on a loan before a year of availing of it. They also look for 12 months of uninterrupted EMI payments. Apart from that, there are certain charges levied when closing a personal loan before the binding due date. 
 
               Also Read: Foreclosing A Loan Keep These Points in Mind

 
To Conclude: 
 
This information would come in handy for Kabir and others like him who are considering personal loan foreclosure. It is important to know the personal loan closing procedure and all the formalities related to it to make an informed decision.  While the personal loan foreclosure process is simple, the penalty associated with it is dependent upon your outstanding balance. Therefore, if you are closing a personal loan soon, then carefully analyse all the above factors and avoid potential problems in doing so.
 


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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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