As of Q3 2024, personal loan debt rates make up about 1.4% of the total consumer debt. Most of us have experienced financial crunches at some point in life, such as during medical emergencies or planning home improvements. In such situations, many of us turned to personal loans to obtain some financial backup in crucial times. We can use personal loans for any purpose, be it paying hospital bills, making large purchases, or consolidating numerous debts.
If your application is approved, you can withdraw the full or partial amount and receive it in your bank account within a few days. You can use the funds for multiple purposes. Thereafter, you should repay the loan in certain fixed monthly installments, as mentioned in the loan application terms. The best thing about personal loans is that one can withdraw the funds through simple online procedures and receive a lump sum amount quickly.
However, after reaping its full benefits, you should take responsibility and close your personal loan on time. The best solution would be to learn how to close personal loans early. It’s a good thing that you have made this crucial financial decision to apply for a loan to fund your dream home or pursue your dream career. Now, it’s time for early repayment.
What Does Closing a Personal Loan Mean?
Can we close the personal loan early? Yes, we can! Closing a personal loan indicates that you have made its entire repayment and have paid all its monthly installments. When you pay a loan in full, it means that the loan account is closed, and you will get a “No Dues Certificate”. On the other hand, if the borrower fails to make timely payments, the loan is sent to collections, where it gets assigned to a third-party debt collection agency.
Types of Loan Closure: Regular vs. Pre-Closure
Let’s discuss the two major types of loan closures.
- Regular Closure: In a regular loan closure, the borrower repays the loan according to the loan agreement, that is, on the due dates.
- Pre-Closure: It refers to the borrower’s decision to repay the loan earlier than the stated due date.
Step-by-Step Process to Close a Personal Loan
Let’s take a look at the step-by-step procedure on how to pre-close a personal loan.
- Visit the bank or lender with the necessary documents, as required.
- The lender may ask you to fill out a form or write an appealing letter to request a pre-closure of your existing personal loan account.
- Sign the required documents whenever asked for.
- You might need to pay a certain pre-closure amount, if applicable.
- After paying your balance amount and repaying the entire loan, take an acknowledgment regarding the closure of the loan account and the balance amount you have already paid.
Benefits of Closing a Personal Loan Early
Most people ask, “Can I close personal loan early?”. The short answer is yes! It saves money on the total interest. That’s because it cuts down on the interest amount paid over the entire loan tenure. This can save a good amount of money. A few other benefits of closing your personal loan early include:
- Boosting your credit score
- Gaining a peace of mind
- Reducing your debt-to-income ratio
- Enjoying financial stability since there would be no recurring payments
Impact of Loan Closure on Your Credit Score
If you pre-close personal loan, it can have a short-term or temporary impact on your credit score, including:
- A temporary dip in your credit score as there are changes in the credit profile
- Future applications may slow down due to delayed updates on the credit report
- Foreclosure charges may apply
- Your financial flexibility or liquidity may be affected since you are paying a large sum towards the loan pre-closure.
What Documents Do You Need to Close a Loan?
To close a loan early, you might need some or all of the following documents, depending on the lending partner’s policies.
- Loan account statement
- Loan closure formal request
- No Objection Certificate (NOC)
- Identity proof
- Address proof
- Proof of final payment
How to Verify Your Loan is Officially Closed
After the final payment, you must verify whether your loan account is officially closed from the lender’s end. Review your loan documents and look for a confirmation message from your lender.
- Review the loan closing disclosure.
- Check your emails, messages, etc., to verify whether you received your official loan closure confirmation.
- Collect your payoff statement or letter
- Ask your lender directly
- Keep every record of all your loan agreement documents
Can You Close a Personal Loan Online?
Yes, you can make prepayments for your existing loan online. However, learn from your lender whether they accept online payment methods or prefer other electronic money transfer modes. Wondering how to close personal loans faster online? Follow these steps:
- Contact the lender or bank using their customer care number.
- Provide all the required loan details, account number, ID details, etc.
- Inform about your interest in loan foreclosures.
- Follow the documentation or other essential steps or instructions.
- Make the final foreclosure amount, and now you can enjoy peace of mind.
Alternatives to Pre-Closure of a Loan
Since loan foreclosures impact your credit history for a brief period, you can try other alternatives to loan pre-closures.
- Reinstate your loan.
- Make a new repayment plan.
- Modify your loan by lowering the interest rate or adding overdue amounts to the loan balance.
- Try refinancing to pay off your old debts and start afresh with a better interest rate.
Conclusion
To conclude, the answer to your query: ‘Can we pre-close a personal loan?’ is a short ‘Yes’! If you need help with pre-closing your loan account, contact your lender, including platforms like Stashfin, and make negotiations, if any. The article will help you make your decisions and secure your finances better.
Frequently Asked Questions
What Is the First Step to Closing a Personal Loan?
While searching for “how to close a personal loan early”, the first step to closing a personal loan account is checking your loan agreement and measuring the foreclosure fees or penalties involved.
Can I Close My Loan Without Visiting the Bank?
You can pre-close your loan in the comfort of your home. You don’t need to visit the bank branch. All you need is a stable internet connection and the lender’s application or website.
What Happens If I Miss Collecting the NOC?
Your personal loan account will be considered closed only after you receive the NOC (No Objection Certificate). Sometimes, it is a bank’s issue or CIBIL might take some time to update the full repayment status at their end.
Are There Penalties for Closing a Loan Early?
Many lenders charge borrowers with a small foreclosure fee to discourage them from paying early. It can also tighten your budget as you are paying off a lump sum.
How Long Does It Take to Close a Personal Loan?
It may take anywhere between a few hours to a few days to close a personal loan account completely. During regular closure, you make all EMI payments according to the original loan terms. Meanwhile, in a pre-closure plan, you can repay all or the majority of your loan principal and interest before the end of the loan tenure.