Things You Should Know While Closing a Personal Loan
Are you planning to close your personal loan?
If yes, you need to contact your lender and understand all the aspects before going ahead with a pre-closure.
A personal loan comes in handy during an urgent financial need like a home improvement project, wedding expense, medical bills, etc.
Personal loans, however, come with a higher rate of interest as they are mostly unsecured. Financial advisors in debt management recommend you should clear off the personal loan first before other loans like a home or car loans.
Since it comes with a higher rate of interest, closing your personal loan will reduce your financial burdens faster.
Ways to close your personal loan
There are three ways by which you can contact your lender and close your personal loan account.
The rules are not uniform for every lender, so make sure you are aware of the terms they have for closing personal loans before you apply for them.
You can close your personal loan by-
- Repaying the loan till its tenure is complete or pre-close it to reduce the burden of debt
- Prepay the loan
- Prepay the loan partially.
Closing the personal loan does not mean your payments for the amount you have borrowed will stop.
You will be subject to specific procedures for getting a closure properly.
The following are the procedures you need to abide by when you want to close the personal loan-
Regular closure after completion of the tenure
When you close the loan after completing its whole tenure, this is known as proper closure. After the loan has been paid back fully, you need to do the following-
- After you have completed paying all the monthly installments of the loan, contact your lender to check whether all outstanding dues have been cleared. For instance, you might have incurred late payment penalties in case you missed out on any monthly installment or paid late. Check with your lender and confirm there are no outstanding dues on your part to close the loan.
- When all the dues are sorted and cleared, your lender will give you the personal loan closure certificate after checking that everything is in order. Generally, the lender will check your details and verify your loan account before the closure is complete.
- You can contact the customer care helpdesk of your lender to start proceeding with the personal loan closure process. The professionals will guide you on what needs to be done as closure terms and conditions differ from lender to lender.
Procedure for pre-closure
When you repay the personal loan before its tenure ends, it is called prepayment or pre-closure.
Note, some lenders might levy a penalty for pre-closing a personal loan account.
This procedure, however, helps you to reduce interest rates and the burden of debt.
The following are the factors you need to take into consideration for pre-closing the personal loan account-
- Before you opt for the pre-closure option, check for any penalty clauses with your lender. Consider the benefits you will incur with the pre-closure of the loan. Generally, if you decide early to close the loan before its tenure is complete, you will receive the most benefits. There are again some lenders that charge high penalties for pre-closure of the loan. Different lenders have separate rules so never make any hasty choice before –
- Consulting the lender
- Know the percentage or amount of penalty you will be charged
Once you have gathered the information and believe you will be benefitted with pre-closure of the loan, pay it off in full.
The lender gives you an acknowledgment that the loan amount has been cleared. This can be used for any future reference.
The account is closed after the lender completes the remaining procedures of the loan agreement.
Part-payment of your personal loan
Part-payment of the personal loan is possible.
You might not have sufficient cash to pay off the loan entirely, but you can clear a significant part of it with part payment.
Like the above, this procedure has a penalty, and the amount you pay depends upon the terms and conditions of your lender. However, you should be careful.
Some lenders limit part-payments frequently. Some may provide a provision for a few part payments only.
Check their terms and be informed about the impact of them on your financial status.
Analyze the benefits that it has for you and take the step accordingly.
Does the pre-closure of personal loans impact your credit score?
There is a misconception that pre-closure of personal loans harms your credit score.
This is not true.
Specialists in debt management state pre-closure of personal loans can improve your credit score and improve your standing in the market for future loans.
However, make sure you choose at an early stage to reap the maximum benefits of pre-closure of personal loans with your lender.
Carefully consider a cost-benefit examination before closure
To be credit healthy, conduct a detailed cost-benefit analysis before you close the personal loan.
If needed, you can take the guidance of a skilled financial advisor before you make the final choice.
The right decision at the correct time is your first step to improve credit score and stay credit healthy.
Closing personal loans is a simple procedure.
Make sure all the penalties and other fees are cleared with your lender first before proceeding with the process.
Since you do not have any collateral pledged, unlike a traditional loan, closing the personal loan is fast. You need to contact your lender and follow the correct procedure for closure.
Every lender has different terms and conditions for closing personal loans. They need to be understood completely. Do not hesitate to consult them for clarifying doubts or queries.
Be informed and make sure you choose the right procedure to avoid any negative impact on your credit score.
You must close your personal loan account and remain debt-free for financial stability and peace of mind!