How Does Prepaying a Loan Affect Your Credit Score? Understand the Impact

Prepaying a loan does not automatically reduce your CIBIL Score. When you repay the outstanding loan amount before the scheduled tenure, the lender may report the account as closed after completing the applicable closure formalities. This can change the information in your CIBIL Report, but the effect on your score depends on your overall credit profile. Your CIBIL Score is influenced by factors such as repayment history, credit utilisation, length of credit history, credit mix and recent credit enquiries. Prepayment can also reduce your outstanding debt and demonstrate that you have fulfilled your repayment obligation. However, closing an older loan may reduce the length or diversity of your active credit history, which can influence how your profile is assessed. The exact impact cannot be predicted from prepayment alone. Before prepaying, review your loan terms, applicable charges and financial goals, and continue making scheduled payments until the lender confirms the account closure.

How loan prepayment can change your credit profile 

Loan prepayment can change your credit profile because it affects the outstanding balance, account status and mix of credit reported by the lender. A part prepayment reduces the amount outstanding on the loan once the lender updates the account information. If you fully repay the loan before the scheduled tenure, the account may subsequently be reported as closed. However, a closed loan does not disappear from your CIBIL Report and may continue to form part of your credit history. The impact can therefore vary depending on your overall credit profile and other active accounts. 

The possible effects include:

• Lower outstanding debt: A part prepayment reduces the amount outstanding on the loan.
• Change in active credit mix: Closing one loan can alter the combination of active credit accounts.
• Change in account status: A fully repaid loan may change from active to closed.
• Reporting update: The lender must update the revised account information with the credit bureau.
• No guaranteed score movement: Your CIBIL Score can change differently because it considers multiple aspects of your credit history.

Therefore, loan prepayment should not be viewed as a guaranteed way to increase or reduce your CIBIL Score. The effect depends on your complete credit profile, including repayment history, outstanding balances, credit mix and other reported information. After making a prepayment, continue monitoring your loan account and CIBIL Report to ensure the updated balance or closure status is reported accurately.

A prepayment is less likely to create a significant negative effect when your wider credit profile remains healthy. A borrower with a consistent repayment record and responsibly managed credit accounts may have less reason to be concerned about a change following loan closure. However, no fixed change in score can be predicted because credit scoring depends on the information in an individual's credit report.

Consider these factors before making a full prepayment:

Overall, prepayment should be viewed as one part of your broader credit profile rather than a guaranteed way to improve your CIBIL Score. Continue managing other credit accounts responsibly, maintain timely repayments and monitor your credit report after the lender updates the prepaid loan. This helps ensure your credit history remains accurate and reflects the latest account status.

How to prepay your loan through Bajaj Finance 

Bajaj Finance customers can prepay an eligible loan through the Bajaj Finance App or Customer Portal. Before making the payment, check your outstanding amount, applicable charges and the prepayment terms for your specific loan.

Steps to prepay your loan:

1. Log in: Open the Bajaj Finance App or Customer Portal and sign in using your registered mobile number, OTP and date of birth verification.
2. Select your loan: Go to Service then Relations and select the relevant active loan account.
3. Choose payment: Select Make Loan Payments and choose Part-prepayment or Full Payment/Foreclosure, if available.
4. Enter the amount: Enter the required amount and review applicable charges and payment details.
5. Complete payment: Select an available payment method, such as UPI, Net Banking or Debit Card, and complete the transaction.
6. Save confirmation: Retain the payment receipt and transaction reference for your records.
7. Check your account: After processing, review your loan statement to confirm the revised balance or closure status.

After prepayment, continue following the applicable repayment schedule until the lender confirms any revised terms or loan closure. For full foreclosure, retain the applicable closure documents, including the NDC/NOC, once available.

Ways to manage your credit profile after loan prepayment 

You can minimise potential credit-profile disruption by maintaining timely repayments, avoiding unnecessary new borrowing and checking your credit report after prepayment.

Use these practical measures:

1. Continue paying EMIs until closure is confirmed
   Do not assume that making a prepayment automatically cancels the next scheduled EMI. Follow the repayment instructions provided for your loan account until the lender confirms the applicable closure or revised schedule.
    
2. Consider part prepayment when appropriate
   If your objective is to reduce the outstanding principal without immediately closing the loan, a part-prepayment may be an option where permitted under the loan terms. Check the applicable terms before making the payment.
    
3. Avoid taking new credit only to maintain your credit mix
   A loan should not be retained or replaced solely for the purpose of keeping an active account. Taking additional borrowing creates a new financial obligation and may also result in a credit enquiry.
    
4. Keep other credit accounts well managed
   Continue making payments on existing loans and credit cards by their due dates. Avoid allowing another account to become overdue after prepaying a loan.
    
5. Review your CIBIL Report after the lender updates the account
   Check whether the outstanding balance and account status have been reported correctly. CIBIL states that lenders generally submit account information periodically, so a recent payment or closure may not appear immediately.
    
6. Keep your prepayment and closure records
   Retain the payment confirmation, loan statement and closure-related documents issued by the lender. These can help if the reported account information does not match your records.
    

Overall, responsible repayment, limited new borrowing and accurate credit reporting can help maintain your credit profile after prepayment. Continue monitoring your accounts and CIBIL Report to ensure the updated loan status is correctly reflected.

What to do if your loan prepayment is not reflected in your CIBIL report 

If your loan prepayment or closure is not reflected correctly in your CIBIL Report, first allow sufficient time for the lender to update and submit the revised account information. Check your loan statement, payment receipt and closure documents to confirm the prepayment amount, date and account status. If the information remains unchanged, contact the lender through its official service channel and request an update to the reported details. Keep your Loan Account Number, payment confirmation and relevant statements ready when raising the request. Retain the service-request reference for follow-up. After the lender processes the correction, review your CIBIL Report again to confirm that the outstanding balance, account status and other details are accurate. If the incorrect information continues to appear and the matter is eligible for dispute resolution, raise a dispute with CIBIL and provide the relevant supporting documents. Do not assume that a completed prepayment will be reflected immediately in your credit report.