A personal loan is helpful during emergencies or when incurring big-ticket purchases, like buying a car or a house. Typically, individual loan interest rates are low, and so are the EMIs, and you can pay it over several months.
But sometimes, because of a family windfall, receiving a lump-sum bonus, better loan opportunities, future investment, reduced EMIs or clearing outstanding against your name, you may want to repay the loan in one go or pay a part of it off.
However, unlike the application process, many people aren’t aware of closing the loan. In such a case, what’s the best way forward? Let’s find out.
There are different repayment methods to close a loan. Here they are:
1. Regular closure – In this, you pay all the EMIs for the set tenure and close the loan as per the terms and conditions mentioned in the loan agreement.
2. Pre-closure – A pre-closure involves closing the loan before the tenure of the loan ends. Typically, you can pre-close only after completing the set lock-in period of, say, 12 months. This lock-in period varies from lender to lender. While you save on several EMI payments, don’t forget to consider the foreclosing charges, if any.
3. Part-prepayment – You cannot close your loan by paying a part of your loan amount, but it helps reduce the personal loan interest rates and tenure. Please keep in mind; there may be a minor prepayment penalty.
Before you begin the closing process, you need to collect and keep a few essential documents in hand.
- Personal loan account number – This should be available on the loan document or online.
- Loan-related documents such as loan account statements, loan approval letters, and other documents provided by the lender.
- Identity proof like the Aadhaar card, PAN card, passport, driving license, or other government-issued documents.
- Other documents like bank passbooks and photocopies of all documents.
- Loan closure letter.
If you’re considering closing your loan before the end date, you must follow a few basic steps.
Step 1: Visit the lender where you availed the loan and inform them that you would like to close your loan account. Here you can also inquire about the penalties, fees, and other charges associated with foreclosing the loan.
Step 2: The lender will ask you to submit a few documents. As stated earlier, if you keep them handy, you can expedite the process. If you don’t, don’t worry, you can always cross-check with the lender, collect them, and submit them at a convenient time.
Step 3: The lender will verify all the documents. If everything looks good, you will need to make the remaining payment, including any penalties or fees, and clear the outstanding dues. The lender may require you to sign some documents if any.
Step 4: Once all the outstanding dues are settled, you will receive a NOC certificate or an acknowledgment slip from the lender. This is an essential document as it contains all information related to the full payment and closing of the loan. It’s best to keep this safe in case it’s needed in the future.
Once the lender receives the applicable funds, your loan will close automatically.
For a regular closure, the same steps apply. You must follow through with them once you have paid all the EMIs and reach the end of your tenure.
Alternatively, depending on the lender, this process is also available online.
There you have! Closing your loan is a simple 4-step procedure. When you avail of a loan, it’s essential to keep the closure process in mind. Sometimes you might not realize the formalities or charges associated with a loan, and it will come as a surprise somewhere down the road. And you don’t want that. Whether it’s application or closing, research the process thoroughly and be aware of everything that it involves so that you can make an informed decision.