Personal Loan Preclosure Procedure

A personal loan can be highly beneficial when you urgently need funds. It can help you overcome financial constraints. However, it is essential to repay it, as specified, to avoid late fees and a negative credit score.

If, at any point during the loan tenure, you wish to close your loan ahead of schedule to reduce your interest burden, you can do so with ease. Additionally, pre-closing a personal loan can positively impact your credit rating.

Many lenders allow borrowers to pre-close personal loans by repaying the outstanding balance, either in part or in full, after twelve instalments. However, this policy varies between lenders. If you can repay the loan amount before the term ends, pre-closure is a wise choice. It helps improve your financial health and demonstrates strong repayment capability, making future loan applications smoother and more convenient.

Pre-closure of Personal Loan

Pre-closure is repaying the entire loan amount before the scheduled EMI tenure. By pre-closing your personal loan, you save on the interest that would have otherwise been payable for the remaining tenure. However, most lenders charge a pre-closure fee to offset the loss of interest when you close the loan early.

Regular Closure

Regular closure involves repaying the personal loan EMIs as per the agreed schedule until the end of the loan tenure. After paying the final EMI, you must notify the lender to receive an NOC (No-Objection Certificate) and a loan closure certificate, confirming the closure of your loan account.

Part-payment

Part-payment allows you to pay a lump sum amount towards your loan at any point during the tenure. This reduces either your future monthly instalments or the loan term, depending on the terms set by your lender.

Every lender has its own pre-closure charges. You may refer to the following table to get an idea of the pre-closure charges levied by some of the top banks:

You must follow the below-mentioned steps if you wish to pre-close your personal loan:

1. Contact your lender to inform them that you wish to foreclose your loan.

2. Submit a formal application for foreclosure either via email or by visiting your nearest branch along with the necessary documents, including your ID proof and loan documents.

3. Following the submission, you will be asked to make the payment for the pre-closure of the personal loan account.

4. Once the pre-closure is done, the bank will provide you with an acknowledgement letter.

5. The final pre-closure documents will be sent to you in a few days.

You need to submit the following documents to preclose your personal loan:

• Documents pertaining to the loan

• Proof of Identity: Aadhaar card, Driving licence, Voter’s ID, passport

• Proof of Residence: Rent agreement, passport, Aadhaar card, utility bills

• Loan statements showing the total amount of EMIs paid to date

• Demand draft or cheque (for payment of the due amount)

After your personal has been successfully closed, you must collect the following documents from your lender:

• Receipt for payment of the pre-closure amount

• NOC (No-objection Certificate)

• Certificate of Loan Closure

Pre-closing a personal loan offers several advantages if you have the financial resources to do so. Here are the key benefits:

• Paying off your loan early reduces the interest amount you would have paid over the remaining tenure, lowering your overall borrowing expenses.

• Pre-closure demonstrates financial discipline and repayment capability, improving your credit score and enhancing your future loan eligibility.

• Closing your loan ahead of time relieves you of debt obligations, offering peace of mind and reducing financial stress.

• With fewer liabilities, you can strengthen your financial position and focus on other savings or investments.

• Pre-closure increases your creditworthiness, enabling you to secure new loans or credit cards more easily.

While pre-closing a personal loan has its advantages, there are certain downsides to consider before making this decision:

• Many lenders impose pre-closure or foreclosure fees to compensate for the interest income lost due to early repayment. These charges can range from 1% to 5% of the outstanding loan amount, adding to your overall cost.

• The funds used for pre-closing your loan could have been utilised for other financial goals, such as investments, which might have yielded better returns over time.

• Opting for pre-closure means making a significant lump sum payment, which can deplete your immediate savings and limit your ability to address unforeseen financial needs or emergencies.

Reference of all T&C necessarily refers to the terms of the Partners as regards to pre-approved offers and loan processing time amongst other conditions.