Whenever you have an unexpected financial hardship, the first thing that comes to mind is to arrange for instant funds. In such unfortunate circumstances, you can always choose to get a personal loan. And the reason why personal loans are the best choice is that you can get this loan without submitting any collateral.
Since personal loans are unsecured loans, lenders check your credit score to determine how well you have maintained your credit history. If you have a high credit rating above 750, you can quickly get your loan at a comparatively lower interest rate. Moreover, you can utilise a personal loan for various reasons such as sudden medical emergencies, wedding expenses, home renovation, business growth, etc.
You can easily apply for a personal loan using Buddy Loan. It is one of the largest loan aggregators that help you get loans from top lenders in India. With affordable interest rates and quick approval, you can get this loan within a few hours. However, you must give equal importance to your credit score and check it frequently using Buddy Score.
Once you have met all your financial obligations, you might want to close your loan account to reduce the debt burden. Hence, this article will enlighten you about completing your loan account.
3 Ways To Close Personal Loan Account
Prepayment of Loan: It repays the entire loan amount before the tenure period. And some lenders charge you with prepayment penalties for pre-closing the loan. Hence, before going for prepayment, check the penalty charges and calculate the benefits you can get by prepayment. However, prepaying your loan can help reduce your interest rates and debt burden.
Also Read: How to Get a Personal Loan: A Complete Guide on Eligibility and Documents
Procedure to Pre-Close your Loan:
- Visit your bank from where you have availed of your loan.
- Have the required documents such as ID proof, bank statements, loan account number, Cheque or DD to pre-close your entire loan amount.
- You must pay a prepayment penalty which the lenders charge a certain percentage from your loan amount.
- Once you prepay your loan through Cheque or DD, the lender will give you an acknowledgement letter.
- After completing the steps, the bank will send you a loan agreement after a few days of closing your loan account.
Part Prepayment of Loan:
Sometimes, you might want to reduce your debt burden but will not have sufficient funds to close your loan entirely. Here is when you can choose to part-prepay your loan. However, you will have to pay the penalties for part-prepayment of the loan, and lenders do not allow frequent part-prepayments. Also, your account will not be closed until you have repaid the entire loan amount.
Repay your Loan Amount till the Completion of your Tenure:
It is the process of closing your account after repaying the loan amount till the end of your tenure period. Once you repay the loan amount, you must follow the steps mentioned below to close your account.
Steps to Close your Account
- Contact your bank once you have completed repaying all your EMIs to check if you have any outstanding debts to be cleared.
- If you have no pending dues, fix an appointment with your bank to finish the formalities for closing your loan account.
- Usually, once you have completed your EMIs and outstanding dues, banks will send you a closure certificate, either by post or email.
- Carry your ID proof, loan account number and a cheque if there is any pending amount to be paid. The bank will verify your documents before closing your account.
- Once the verification process is complete, your loan account will be automatically closed. You must get a “No Objection Certificate” from the bank as proof of closing the loan.
- If you have any trouble closing your loan, you can also contact the bank’s customer service.
Also Read: Account Aggregator System in India Explained
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5 Essential Things To Do While Closing A Personal Loan
Here are some crucial things to remember when closing or pre-closing a loan:
Pre-Closure Charges
Banks and lending institutions charge a prepayment penalty when borrowers repay their loan before the tenure. The prepayment penalty ranges from 1% to 5% of the outstanding balance before the pro-closure. Hence, check the foreclosure charges before deciding to close your loan.
Obtain Your NOC
The bank provides a NOC (No Objection Certificate) as proof indicating that you have completely repaid the loan and cleared all your outstanding dues. It also shows that the lender does not have any more legal rights on collateral or documents provided by the borrower. Therefore, ensure that you collect your NOC once you have closed your loan.
Collect Your Original Documents
The bank and lending institutions collect essential documents such as Sale Deed, Conveyance Deed, Power of Attorney, Cancelled Cheque, etc. So make sure you collect all these documents back after closing the loan.
Removal of Lien
Lenders usually put a lien on the borrower’s collateral when it is secured loans, and the reason is mainly to refrain the borrower from selling the collateral. Thus, once you have completed your repayment, visit the registrar’s office and your lender to remove the lien on your collateral.
Update your Credit Score
After the loan account has been closed, you must ask your lender whether they have updated the credit score. You can also do it yourself by submitting the required documents to Credit bureaus. Once your credit report gets updated, your score will also significantly rise to improve your credit history. To know your credit score, you can use Buddy Score and get an instant credit report.
Also Read: How Can Your Actions Impact Your Credit Score?
Conclusion
Closing your loan account is comparatively a simple process as you do not pledge any assets with the bank. Therefore, you need to know the procedures and essential things like penalties before closing your account. It is also necessary to clear all your records and have them updated in your credit report to improve your credibility.
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Frequently Asked Questions
Q. Why is it Essential to Close a Personal Loan?
A. It is essential to close your personal loan to ease the debt burden, which will reduce the expenses of interest rates. By closing your loan, your credit score will also improve.
Q. How Much do Lenders Charge Prepayment Penalties for a Personal Loan?
A. The banks and lending institutions charge 1% to 5% of your outstanding balance during the loan pre-payment.
