How to close a personal loan early
Closing a personal loan account after paying back the amount in full should be at the top of your to-do list. You can do this either by repaying the whole amount over the tenure of the loan or prematurely closing the account before the due date. While the former is called a closure (or a regular closure), the latter, termed pre-closure or foreclosure. Foreclosure greatly reduces the debt burden, giving your credit score a facelift in the process as well.
Now, your responsibility doesn’t end with just settling the loan amount that you’ve availed of. For a complete closure, there are a few procedures to be followed, which you should avoid any unnecessary financial inconvenience in the future.
Additional Read: What is annual percentage rate (APR): Understanding how APR is calculated
What is the regular closure of a personal loan?
A regular personal loan closure is when the borrower pays and clears all the personal loan EMIs. The borrower must inform the lender to issue a no objection certificate (NOC) for the closure of the personal loan following the payment of the final EMI.
How do you make a regular closure?
- After having paid back the loan amount in its entirety, approach the bank, and inform them about the same.
- Carry identity proof, a cheque (if there’s any outstanding amount), and your loan account number. The desk will verify these documents before they proceed to close your loan.
- Post due diligence, your loan account will be automatically closed. You’ll need a no objection certificate (NOC) from the lender that will be a testimony to the closure.
- You can contact the bank’s help desk anytime.
Additional read: Personal Loan foreclosure
What is the pre-closure of a personal loan?
A personal loan pre-closure is when the borrower chooses to pay off the personal loan before the pre-determined tenure. When foreclosing the personal loan borrower will be responsible for paying the current month's EMI, outstanding loan balance, and foreclosure fees.
How to pre-close your loan account?
A pre-closure is when you repay the loan amount before the binding due date. You can follow the procedures listed below that will facilitate a neat pre-closure, devoid of any hassle.
- Visit the lender where you had availed the loan from.
- Take necessary documents along, including an identity proof, loan account number, bank passbook pointing at all EMI clearance. Also, carry a cheque to make the payment.
- The lender might levy a foreclosure penalty, a charge that is mandatory (if imposed, that is) and needs to be settled along with the loan.
- After settling the entire loan, the bank will issue you an acknowledgement letter mentioning the clearance details. Retain that for any future reference that may come up.
- Sometimes, a no dues certificate (NDC) may also be issued to you.
Additional read: What is debt consolidation
Don’t forget or undermine the importance of closing your loan account, regardless of a regular closure or a pre-closure.
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