What is a personal loan?

A personal loan is a loan that can help you meet your urgent and immediate cash needs. It does not come with any end-usage guidelines like that with a home loan or a car loan. You can use it for any requirements like funding a wedding, renovating your home, taking an international holiday, down payment for a home loan, buying high-end gadgets, etc.

What is closing a personal loan?

After taking a personal loan, you are required to repay the amount with interest. Closing a personal loan is fully repaying your loan as per your lender’s norms and getting a NOC. You may close your loan as per loan tenure, prepay the loan, or part prepays the loan.

Also, closing a personal loan is not just paying off the loan you borrowed. For a proper closure of a loan, you need to follow specific procedures. 

Learn about the methods followed in closing a personal loan ahead.

How to close a personal loan?

There are three ways by which you can close a personal loan:

  • repay the loan regularly until the completion of loan tenure
  • prepay the loan to get out of the debt burden immediately, or 
  • part prepay the loan to reduce your debt burden

Closure of a loan by regularly repaying the loan

When you close a loan after completing the entire loan tenure, it is called a regular loan closure. 

After fully repaying your loan, you must follow the following listed procedures to close the loan:

  • After paying all your EMIs, it is good to contact your lender and check if all of your outstanding balance is cleared. You might be left with a late payment penalty or other due charges on your loan in case you had paid in late or missed some EMIs. It is a great idea to check and confirm with your bank that none of your payments are outstanding and that you intend to close your loan account.
  • When all your outstandings are clear, you can fix a date with your lender to do other formalities and close the loan. Again, if everything is in order, your lender will send you the closure certificate by email or post.
  • You might be required to carry your loan account number, ID proof, and a cheque if any amount is yet to be paid to your lender’s office. The officials will verify your loan account and documents before proceeding with the loan closure.
  • After the completion of the process, your loan account will automatically get closed. However, you must get a NOC from the bank as proof of your closing the loan. The NOC states that you have repaid the entire loan with no outstanding balance pending.
  • You can even speak with customer care and get support to close your loan the regular way.

Procedure for pre-closure of a loan

Repayment of the total loan amount before the completion of loan tenure is called loan pre-closure or prepayment. Pre-closing a loan might result in a penalty from lenders. However, it will help you reduce your debt burden. 

Below are the things to keep in mind before pre-closing a personal loan:

  • Check the penalty clause criteria and calculate what monetary advantage would you receive by preclosing
  • Pre-closure is favorable when you decide to do it sooner. However, pre-closure fines are severe in the early days of the loan term
  • Different lenders have different policies and fines when it comes to pre-closure
  • Do not make a hasty decision of preclosing a loan

Below are the steps to follow for preclosing your loan:

  • Contact your lender
  • Carry the necessary documents like ID proof, loan account number, bank statements mentioning your last EMI clearance, and a cheque for prepaying the remaining personal loan amount
  • The lenders charge a penalty as a percentage of your loan amount that you must pay along with the balance loan prepayment
  • After prepaying your loan through cheque or other methods, the lender will give you an acknowledgment letter that you must keep safely with you
  • After successful completion of all the steps and closure of the loan, your lender will send you the loan agreement

Procedure for part prepayment of a loan

You might get a bonus or be eligible for a windfall gain from some source. You can use this surplus cash to pay off your loan. When the amount is not sufficient to pay off the entire loan, you can opt for part-prepayment of your loan.

Some penalties are involved in the part pre-payment of a loan too. It is good to check with your lender on charges before making a part prepayment, as these conditions vary from lender to lender.

Part prepayment would not result in the closure of your loan account. However, you may have a few more EMIs left after making part prepayment of the loan. 

Conclusion

Closure of personal loans is a simple process compared to secured loans, as you do not have to release any assets pledged with your lender. With timely communication and support from your lender, you can quickly get free of your debt obligations.

Anil Sumra

Anil Sumra is a Digital Marketing Expert with more than 10 years of experience. He loves to write on various financial topics online to create financial awareness. He holds a bachelor’s degree in Finance & Management.

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