5 Important Things to Do While Closing a Personal Loan

One can obtain a personal loan to celebrate their silver jubilee anniversary or purchase a high-end product as a gift for their loved one. However, a personal loan is not only for toasting life's gala moments; it also comes in handy to solve unexpected financial constraints, such as emergency health treatment or house repairs.

However, when applying for a loan, it is crucial to remember the key steps, such as closing a personal loan. To be worry-free and prepare for any misleading and unexpected future mishaps, here are 5 essential things to consider when closing a personal loan.

Types of personal loan closures

There are three ways to close a personal loan:

1. Regular personal loan closure

   A regular personal loan closure occurs when the borrower meets all the terms specified in the agreement, which involves making timely payments of all interest within the stipulated payback period. By doing so, the borrower's credit score improves positively and demonstrates financial responsibility.

2. Personal loan pre-closure

   Personal loan pre-closure refers to paying the amount before the end of the tenure. This allows borrowers to clear their debt early and potentially save on interest payments. However, in most cases, it is allowed after a year or after a minimum of 12 EMIs have been made, depending on the lender, with regular payment of the loan amount.

3. Personal loan part prepayment

   Prepaying a personal loan is an option that allows borrowers to pay off a portion of their loan amount before the scheduled repayment date. This option can help borrowers to either shorten the loan tenure to help them become debt-free sooner or reduce their monthly instalments to provide flexibility and potential interest savings.

Things to do while closing a personal loan

Closing a personal loan includes an exit with all the required documents, whether received or submitted. A proper loan closing is mandatory to safeguard against any future unannounced developments that may arise.

1. Pre-closure and foreclosure charges

   If you plan to repay your loan amount before the agreed tenure, you may be subject to a pre-closure or foreclosure fee, a charge levied by the lender when the outstanding loan balance is paid in a single payment. So, check with the lender about the specific terms, conditions, and requirements, as well as any other personal loan charges, such as processing, legal, and administrative fees, before planning to close your credit facility.

2. NOC (No Objection Certificate)

   A No Objection Certificate is a document that states that the borrower has cleared all the repayments, including any additional fees attached to the loan. This implies that any collateral or supporting documents are now in the borrower's hands, and the lender has no legal rights.

3. Secure all original documents

   Documents such as cancelled cheques, power of attorney, conveyance deeds, and sales deeds are crucial documents lenders require to verify the borrower's legitimacy before sanctioning the loan amount. However, after repaying the loan amount and closing the loan, the borrower must request that the lender return all the essential documents.

4. CIBIL score update

   Financial institutions are accountable for ensuring that the borrower's CIBIL score is updated in the CIBIL database after repayment and closing of the loan. If the borrower's outstanding balances are not updated due to a technical error, it can negatively impact the CIBIL score, particularly when applying for a new personal loan in the future.

5. Collect the account statement

   When you close your personal loan, the bank may provide you with an account statement. Collect this statement, as it proves you've paid all your Equated Monthly Instalments (EMIs) on time, which can improve your credit score and help you get better loan offers in the future.

A personal loan is a valuable tool for attaining financial freedom. It can be used to waive off accumulated debts, buy products, or in case of a financial emergency. Remember, the process might feel tedious and overwhelming. However, it's one of the important ways to mark yourself as a responsible borrower who has duly paid.

If you're planning to close your personal loan, follow the steps outlined above for a seamless process.