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For some people, carrying the burden of repaying debt for a personal loan might be a deadly process. Some individuals just don't like to be in the repayment process for a long time. That's why they seek ways for loan foreclosures. If you have applied for a personal loan earlier and now want to end the term by prepaying it early, welcome to this all-encompassing post. Here, you will learn everything about the personal loan closure process.
Closing a personal loan earlier saves you money in the interest charges. But you should always understand the process. Note that some banks or lending institutes have a particular lock-in period. During this period, you should not make any defaults. After this period of time, you may apply for loan closure. So, before narrating the steps, here are the types of personal loan closures.
It's when the borrower repays the amount based on the original loan agreement. The borrower clears the EMIs, and the lender should issue the NOC or No Objection Certificate for the loan closure to get the closure certificate. If you want to close this type of loan early, you can follow these steps:
A pre-closure is when the borrower repays the loan amount before the scheduled tenure. The repayment lets borrowers save the internet that they would need to pay otherwise. This type of closure is excellent for those who wish to save on the interest.
Pre-closure is an excellent option for borrowers who have extra funds and wish to close the term earlier. Note that it might not be an option for all types of personal loans. Besides, it may charge you a penalty since you are not paying the interest.
Suppose you wish to reduce your monthly instalments and loan tenure. In such cases, you can choose the personal loan part payment. You must pay the amount based on the rules and terms of the financial lender. You can pay a portion of your loan without closing it completely by making part payments. This reduces your interest and loan tenure, too.
Maximum banks and financial institutes charge a particular prepayment penalty for borrowers who wish to close personal loans early. This penalty amount gets calculated into a percentage depending on your loan balance or interest rate. However, there are ways in which you can avoid these penalties.
If you want to consider personal loan early repayment, here are the steps you should follow:
Before anything else, thoroughly reviewing your loan agreement is imperative. You need to pay attention to the loan's terms and conditions, including the charges or penalties for prepayment. Comprehending these details helps you avoid unexpected charges.
Your financial condition plays a key role in determining how much you can afford to repay. So, if you intend to close your loan, prepayment depends on your financial status. For this reason, you need to assess aspects like:
Evaluating these aspects will help you make a realistic plan for personal loan closure.
The next step involves visiting the bank. You may contact your bank executive to understand the process of pre-closure of your loan. After you are familiar with the process, you can easily request the pre-closure form.
Now that you are determined to close your personal loan, you should read the form carefully. After completely reading and understanding the form details, you can sign it.
If you are determined to opt for a personal loan closure, it's time to learn about the documents required for the process. On that note, the following are the documents you need to submit:
You may also need the following documents to close the personal loan before the scheduled date:
After submitting the documents, you can make your payment via the demand draft, cash, or cheque.
One quick note: Suppose you cannot visit the bank for some reason. You don't need to worry. You can send your representative. But your representative must carry the authority letter that you're signing. The person should carry the required documents and ID proofs like a PAN card, Aadhaar card, etc.
After the documents and form for prepayment are submitted to the bank, you need to wait for a few days for the bank to give the acknowledgment letter. The final agreement for the personal loan closure is sent within a couple of days after the loan closure.
Planning for a personal loan early repayment process for the first time? You need to keep the following things in mind:
Knowing how much you owe is significant. So, you must evaluate the payments you made recently. Also, keep how many payments are due. Doing so will help you make a note of other payments that you have for each month.
Once you get an idea of your repayment capability, you can proceed seamlessly. You need to cut down on unnecessary monthly costs. Avoid overestimating your repayment ability, as it might leave you with nothing for emergency funds.
One more excellent way to evaluate your personal loan early repayment eligibility is to consider your total EMI amount. Your EMI is the round-figure amount that helps settle the loan earlier. Rounding up the EMI may make a big difference to the loan repayment.
The amount you pay for a loan is mostly determined by the interest rate charged. Now, in the past, you might not have had any other choice but to take a loan with a higher rate of interest. You have the option to transfer the loan to a new lender over time if they offer you a lower interest rate and better terms for the repayment.
It's called the transfer of loan balance. Better interest rates and more manageable repayment periods make this option a cost-effective solution. You can save money easily with the loan balance transfer.
You can only choose a loan transfer balance if you have no options left for closing your personal loan. Paying off personal loans boosts your mental health and relieves the financial burden you carry each month. Note that calculations might help you decide when to close a personal loan. Ultimately, it entirely depends on individual choices to save money on interest or get peace of mind.
Remember, you need to carefully review your loan agreement and understand your terms and conditions. With the above things kept in mind, you can make the personal loan early repayment process simpler. Properly planning and executing each step helps you close the personal loan earlier. Altogether, it's a rewarding experience that enables you to achieve long-term financial goals.
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Unifinz Capital India Limited is a Non Banking Finance Company (NBFC) registered with the Reserve Bank of India (RBI). lendingplate is the brand name under which the company conducts its lending operations and specialises in meeting customer’s instant financial needs.
