Personal loans are a helpful method to get financial help during a time of need. There is no end-use criterion for a personal loan and hence, you can use the amount for anything you need; such as medical emergencies, traveling abroad, renovating your home, etc.
However, personal loans usually come with a high rate of interest. Taking a personal loan increases your financial liabilities and it is recommended that closing a personal loan with no delays should be at the top of your priorities. This helps maintain a good credit score and strong financial health.
Types of Personal Loan Closures
Pre-closure of Personal Loan
Clearing the loan amount before the end of the tenure is termed as pre-closure of a personal loan. A pre-closing a personal loan is a great way to boost your credit score and it also helps you lessen your financial liabilities by reducing the number of EMIs you need to pay.
Regular Closure of Personal Loan
Regular closure of a personal loan refers to paying all your EMIs every month as scheduled and closing the loan at the end of the tenure as mentioned in the loan agreement.
A loan extension is a condition mentioned in the loan agreement wherein the borrower is entitled to an extension of the period for repayment of the personal loan.
For certain eligible customers, banks and financial institutions offer the option of a top-up loan. This is an additional amount of funds, over and above the loan amount.
Borrowers must understand the procedure to follow when closing a personal loan. This helps keep the process smooth and hassle-free.
How to Make a Regular Closure of Personal Loan?
- After you have paid back your loan in its entirety through regular EMIs and the tenure of the loan is over, contact your bank to inform them about it.
- When visiting the bank to close your personal loan, carry identity proof, a cheque for the outstanding amount if any, and your loan account number.
- All the above-mentioned documents will be verified by the bank at the desk before they proceed to close your loan account.
- After all requisite verifications, your loan account will be automatically closed. You must obtain a NOC (no-objection certificate) from the lender as proof of loan closure.
How to Make a Pre-Closure of Personal Loan?
Note: Some banks and financial institutions charge pre-payment fees for paying off your loan in full. However, some online lending platforms like MoneyTap do not charge any fees for pre-payments. So, before you decide to pre-close your personal loan, check with your lender if there is any penalty for doing so.
- Pre-closure of a personal loan can not be done online and you will need to visit a nearby branch of your bank to pre-close your personal loan.
- A bank executive will give you a pre-closure form and you will be required to attach the following documents to the form –
- Proof of identification such as a driver’s license, passport, or Aadhaar card
- The loan agreement and other associated documents
- Bank statement reflecting the payment and clearance of the final EMI
- Pre-payment statement available on request from the bank
- Make the payment by cash, demand draft, or cheque.
- After the verification of all documents, the bank provides an acknowledgment letter to you. This is an important document that needs to be saved.
- After closing the loan account the bank will send you the closure of the loan agreement.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, and personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at firstname.lastname@example.org.