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  • Personal Loan Preclosure Procedure

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  • Personal loans can come in handy in the situations of dire financial need such as emergency health treatment, house repair, wedding, etc. However, when you have surplus money in hand, you should consider pre-closure of your personal loan and be free of it. Most banks allow you to pre-close a personal loan by paying the outstanding amount, any time after six installments. However, pre-payment penalty is charged on doing so.

    Types of personal loan closures

    • Regular personal loan closures : A regular personal loan closure is when the borrower clears all the EMIs. Following the payment of the last EMI, the borrower has to intimate the lender to issue the No Objection Certificate for the closure of the loan and finally the loan closure certificate.
    • Personal loan pre-closure: A personal pre-closure is basically when the borrower decides to close the personal loan before the set tenure. In most cases, the borrower can opt for a personal loan pre-closure after a year or payment of a minimum of 12 EMIs. When foreclosing the loan, the borrower will have to pay the EMI of the current month, any outstanding dues if there, are and the foreclosure fees.
    • Personal loan part-payment: If the personal loan borrower wishes to reduce the monthly installments and the tenure of the personal loan, he/she can opt for a personal loan part payment. The part payment amount will be subject to the terms and conditions as set by the financial lender.

    Personal loan pre-closure charges

    Financial lender Foreclosure fees
    HDFC Bank 2% - 4%
    ICICI Bank 5% + GST
    Yes Bank 2% - 4%
    Bajaj Finserv 4% + GST
    CitiBank 4% + GST
    Kotak Mahindra Bank 5% + Service Tax

    Personal loan Pre-closure Process

    Pre-closure of personal loan may not be a herculean task. However it is important that you understand the process right when you are taking a personal loan from a bank, as it may differ from one bank to another.

    Some of the basic steps you can follow while pre-closing a personal loan are:

    • Personal loans cannot be pre-closed online, therefore you are required to find the nearest bank branch, where you can pre-close your loan. You can call the bank’s customer care number to find the branch next to you.
    • When you visit the bank, you can contact a bank executive in the loans section to help you by explaining the process of pre-closure, if you do not already know. Once you are aware of the process, you can request for a pre-closure form.
    • Read the form carefully and fill all the loan details and personal details required in the form. Sign the form after you have completed filling the form without any blank spaces.
    • You are also required to submit a set of documents for pre-closing your loan. Some of the documents required are:
      • Identification proof such as Passport, Driving License, or Aadhar Card.
      • Loan documents.
      • Bank statement reflecting the payment and clearance of the last EMI.
      • Pre-payment statement, which you can avail by requesting with the bank. It can be sent to you either online or via post.
    • Once all documents are submitted, you can make the payment through cheque, demand draft, or cash.
    • If due to some reason, you are unable to visit the bank on your own, you can send a representative to do so, on your behalf. However, your representative should carry an authority letter duly signed by you. He or she should also carry all the required documents, along with:
      • Loan applicant’s identification proof such as PAN Card, Passport, Driving License, or Voters ID).
      • Authorisation letter from loan applicant.
    • After following all the steps, the bank will give you an acknowledgement letter which must be saved carefully.
    • The final closure of the loan agreement is sent to you in a few days after closure of the loan.

    Clearing off personal loans gives a mental boost as it relieves the financial burden that you carry every month. Calculations may help you decide whether paying off a personal loan early is a good idea or not, however it is your individual choice if you want to save your money on interest or get back your peace of mind.

    Documents required for Personal Loan Pre-closure

    • Relevant loan documents.
    • Proof of address and identity – Passport, Aadhaar card, Voter ID card, etc.
    • Loan statements displaying the details of the EMIs paid till date.
    • Cheque or demand draft.

    Documents you need to collect after personal loan pre-closure

    • Pre-closure payment receipt.
    • No Objection Certificate to close the personal loan.
    • Personal loan closure certificate.
    • Payment of dues certificate.

    FAQs

    1. Could there be a reason why my pre-closure was halted by the lender?
    2. To foreclose your personal loan, you have to meet the terms and conditions as set by the lender. Most lenders allow pre-closures only after a certain period, say 6-12 months of continuous payment of the EMI.

    3. Are the foreclosure charges applicable for all financial lenders?
    4. No, financial lenders such as State Bank of India and Axis Bank do no charge any foreclosure fees.

    5. Are there charges for personal loan part-payments?
    6. Generally, financial lenders do not charge borrowers who wish to make part-payments towards their personal loan, however, to make a part-payment, the borrower has to meet the terms and conditions as set by the bank.

    7. Which will be better for my credit score? Making a foreclosure or repaying the loan over the tenure?
    8. While making a pre-closure and closing a loan repayment will be good for your credit score and reputation with the lender, having a longer credit history also affects your CIBIL score in a good way. Proving that you can make repayments over a long duration will ensure that your credit score is optimum.

    9. How will I know how much I’ll need to make a personal loan foreclosure?
    10. Before you intimate the financial lender that you wish to make a personal loan pre-closure, request the customer care unit to issue the repayment schedule. The repayment schedule will display the EMI payments and the outstanding balance as well. Once you know these details, use a personal loan foreclosure calculator to determine how much you would need exactly to close your personal loan. The personal loan foreclosure calculator will take factors such as the total loan amount, foreclosure charges, and outstanding balance into consideration before displaying the amount you would require to close the personal loan.

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