A personal loan can be instant assistance to satisfy critical cash needs. A personal loan can be used for many purposes because it is not tied to an end-use requirement like a home loan or car loan. Examples include home renovations, wedding expenses, international travel, the purchase of high-end electronics, down payments for home loans, and the list goes on and on.
Current interest rates for personal loans
Personal loans currently have interest rates that can range from around 8.5% to 36%. Your lender will often base the rates for a personal loan on your income level, credit score, and other debts you are responsible for paying off.
Given that personal loans are unsecured loans, you may have noticed that they typically feature high-interest rates. The highest-interest debt should be paid off first, according to experts, if you want to lessen your financial load. Closing the personal loan should be your first priority if you have it plus other debts like a home loan, car loan, etc. because doing otherwise could make your debt load worse.
Methods of closing a personal loan
- To significantly lessen your debt load, you can either pre-close the loan or routinely repay the loan until the end of the entire term.
- Loan prepayment
- Part prepay the loan
Paying down the loan balance alone does not properly close a personal loan; you also need to fulfill certain processes. Continue reading to learn more about the steps taken to close a personal loan in India.
Procedure for the regular closure of your loan
It is known as a routine closure when someone closes the loan after the whole term. After paying off your loan in full, you must complete a few steps to close the loan.
- It is wise to get in touch with the bank and ask if all of the outstanding debt has been settled once you have paid all of your loan EMIs. For instance, if you skipped certain EMIs or paid your loan late, you might have to pay a late payment penalty or other unpaid fees. It is wise to call the bank once to make sure there are no unpaid fees and that you can end your loan account.
- If everything is understood, you can set a date for when you wish to complete the remaining procedures for closure. If everything is in order, the bank will often send you the closure certificate through email or regular mail.
- You must provide identification verification, the loan account number, and a check if there is any money owed when you visit the bank. Before closing your loan account, a bank representative will check your paperwork.
- Once the procedure is finished, your account will be shut down immediately. You must obtain a “Non-Objection Certificate” (NOC) from the bank as proof that the loan has been closed. According to the certificate, the borrower has fully repaid the loan, and there is no balance left to be paid.
- You can also call customer service to get assistance with paying off your personal loan.
Procedure for the preclosure of personal loan
Pre-closure or prepayment refers to paying off your entire debt before it matures. Some lenders charge a fee if the loan closes early. Pre-closure, however, will assist you in reducing your interest rate and debt load. The steps involved in pre-closing your personal loan are listed below.
Check the contract for a penalty clause before requesting a pre-closure, and estimate the profit you would receive from doing so. As a general rule, pre-closing is more advantageous if you decide to do it earlier in the loan’s term. However, it is also the time when pre-closure penalties are the most severe. The conditions for pre-closure and penalties vary amongst institutions. Do not decide this matter hastily.
- You must go to the bank where you obtained the personal loan.
- You must have the required paperwork with you, including identification, bank statements showing the payment of your most recent EMI, the loan account number, and a check or DD for the full prepayment of your loan.
- The lenders typically impose a penalty that must be paid together with the prepayment and is typically calculated as a percentage of the loan amount.
- The bank will provide an acknowledgment letter once you complete your prepayment with a check, cash, or DD; this letter must be properly stored for future use.
- A few days after the loan is closed and all the necessary processes have been taken, the bank will send you the loan agreement.
What is a part prepayment of the loan?
You might occasionally be qualified for a bonus or a windfall profit from another source, which you would like to apply to pay off your loan. The sum might not be enough to cover the entire loan, though. You then have the option to partially prepay the loan.
The partial prepayment of the debt will also come with certain penalties. Keep an eye out for those. Additionally, lenders may limit the frequency of part prepayments and may only let a small number of them. It is wise to confirm with your lender before making a prepayment because each of these requirements differs between lenders.
Personal loans can be paid off quickly because no assets have been pledged to the bank and need to be released. Closing your personal loan is a crucial responsibility that shouldn’t be overlooked under any circumstances. To prevent any issues affecting your credit, be aware of the steps required to close your loan properly.