How To Close A Personal Loan? Follow This Pre-Closure Checklist
Personal Loans are one of the simplest and most convenient sources of finance available. Being unsecured loans and perceived to be riskier, the personal loan interest rates are higher than other retail loans available. These are popular as the end use of finance is not insisted upon—you can utilise these loans for varied purposes like travel, gold purchase, business or medical treatment.
Before applying for personal loans, doing a comparative analysis on the options available in the market, based on personal loan interest rates, and using personal loan emi calculators, will enable informed decision-making. Another important factor that can affect the choice of lenders is the pre-closure charges.
Preclosure is when you choose to close your loan before the completion of the loan term. Some lenders, as a policy, have a pre-payment penalty ranging from 0.5 percent to 2 percent.
Types of personal loan closures
- Regular personal loan closures: This is the closure of the personal loan in the normal course, after completion of the loan term when all the EMIs have been paid. Once the loan is closed, the lender will give the Loan closure letter.
- Personal loan pre-closure: This is the closure of the loan anytime before the completion of its term. Pre-closure generally invites a foreclosure fee or penalty. Some lenders have this penalty for pre closures done before completion of 12 months from the date of sanction.
- Personal loan part-payment: If the borrower intends to change the loan term or repayment amount, he can make a lump sum payment to have these changes affected. This will not close the loan, but change the EMIs on the terms decided by the lender and mutually agreed upon.
Personal loan Pre-closure Process
Though pre-closure of personal loans attracts a penalty, it is still advisable to pre-close the loan to lessen the interest burden. Here is the procedure to be followed for pre-closure:
- Once you decide to pre-close the loan, you need to visit the bank branch to initiate the process.
- You need to approach the branch from where the loan is availed.
- Once you approach the branch and make yourself acquainted with the process, you may need to submit a pre-closure form or application. This form needs to be carefully filled in and submitted.
- Along with this form, you need to submit the following documents:
- Pre-payment statement, requested from the lenders.
- Copy of your identification and address proof.
- The loan account statement, evidencing payment of EMIs.
- Finally, you submit a cheque or DD of the foreclosure amount.
- On submission of the cheque/DD along with documents, the lender gives an acknowledgement.
- Since the loan is unsecured, there is no collateral to be released, which saves time.
- The final closure letter is handed over to you after a few days, after the realisation of the closure amount.
Clearing personal loans before term boosts the credit score, and acts as a reinforcement of your credit management abilities apart from the general advantage of saving on interest and easing the debt burden. Hence, it is strongly recommended to pre-close the personal loan in case you have surplus money.
To summarise, here are a few documents required to pre-close the lion:
- Loan documents.
- Copy of address proof and identification proof.
- Loan account statement evidencing timely credit of repayments.
- Cheque or DD of the loan closure amount
Once the loan is closed, the lender will provide you with the following documents:
- Payment acknowledgement.
- No objection certificate.
- Payment of obligation letter.
- Loan closure certificate.
Preclosing a personal loan is as hassle-free as applying for it. One needs to approach the branch with the necessary documents and have it closed.