One of the first steps you should take if you want to lessen your financial burden is to try to pay off any personal debts you might have. This is due to the fact that personal loans typically have higher interest rates than other kinds of loans. So you may drastically lessen the impact on your finances by shutting them off. Having said that, paying off your debt is not the only step in closing a personal loan. In actuality, it goes beyond that. While doing so, you must take a few crucial factors into consideration. Here is a brief overview of some of the most crucial points you should bear in mind when closing a personal loan.
Terms and conditions
When closing a personal loan, the first thing to consider is if the loan’s terms and conditions allow you to do so. A waiting time of sorts is often imposed by banks and other financial institutions. During this term you are not allowed to close a personal loan. This time frame is typically set at 12 months from the loan’s application date.
Having said that, you can apply to close your personal loan right away after the 12-month time has passed. In order to streamline the procedure, it is advised to first review the terms and conditions to determine whether you are eligible for loan pre-closure or not.
Documents required
Just paying the balance due on a personal loan might not always be sufficient to close it. You could be required to provide specific documentation to start the loan closure process, depending on the financial institution. Therefore, before officially requesting closure, it is crucial to acquire all of the necessary documentation together.
For instance, you might be required to send a letter asking for the loan to be closed. This should do along with other paperwork, including a check for the remaining loan balance and verification of your identity.
Charges for closing
For paying off personal loans before the agreed-upon term, banks and other financial institutions nearly always levy loan pre-closure fees. These fees are typically stated as a percentage of the entire amount of the outstanding loan. It typically ranges from 1 to 5 percent of the total amount of outstanding loans.
Loan closure certificate
This is among the most crucial considerations you should make before closing a personal loan. Obtaining a letter of recognition from the financial institution certifying the loan closure is something you would need to do without fail, regardless of whether your personal loan is being pre-closed or you’ve reached the end of your EMI payment period.
This one piece of documentation essentially serves as confirmation that you terminated your personal loan account by paying off all outstanding debt. The loan closure document might protect you from legal and financial repercussions in the event of any upcoming disputes.
Procedure for the pre-closure of a personal loan
Regular closure is when someone pays off debt after the specified amount of time has passed. You must complete a few steps in order to end the loan after you have repaid it in full.
- It is a good idea to get in touch with the bank and ask if everything is paid in full once you have paid all of your loan EMIs. It is wise to call the bank once to make sure there are no unpaid fees and that you can close your loan account.
- If everything is clear, you can set a date for when you wish to complete the remaining procedures for closure. If everything is in order, the bank will often send you the closure certificate through email or regular mail.
- You must provide identification verification, the loan account number, and a check if there is any money owed when you visit the bank. Before closing your loan account, a bank representative will check your paperwork.
- Your account will be immediately canceled once the procedure is finished. You must obtain a “Non-Objection Certificate” (NOC) from the bank as proof that the loan has been closed. According to the certificate, the borrower has fully repaid the loan, and there is no balance left to be paid.
End note
Since you do not have any assets committed with the bank that needs to be released, closing personal loans is a rather simple process. It is crucial to complete your personal loan closing as soon as possible. To prevent any issues with your credit, be aware of the steps necessary to close your loan properly.
