Closing a personal loan is an easy task. But, there are certain conditions that one needs to understand before going in for personal loan liquidation.
When we avail of a personal loan, the monthly EMI starts from the next month and so on. As you keep on paying the outstanding amount will gradually reduce. It comes to an end with the last EMI as agreed between you and the bank.
The life cycle of a loan is like this. You take money from the bank, and the bank gets it back in the form of monthly instalments or on-demand over a period of time.
Closure of a personal loan may take place over a regular course of time. For instance, when the loan tenure is over, the bank closes the loan account.
How about the liquidation of a personal loan before it completes the loan tenure? Most of the personal loans available in Indian Banks usually run for 6 years at maximum.
Though you can opt for a shorter period of time, which again would give you higher monthly obligations.
Depends on the Kind of Personal Loan You Have
Personal loans come in various forms. But in the broad sense, it can be classified as a demand loan and a term loan.
Common examples of demand loans are loans against FD and other securities. Pension loans are also considered as a demand loans. Whereas personal loans in which the loan tenure goes for a longer period are considered term loans.
Some demand loans are without pre-closure charges. You may see this in loans given against fixed deposits.
The difference between them is that DL is for a short repayment period type of loan in which you are payable on demand, though you can keep on paying monthly a lump-sum amount as EMI.
Whereas term loan is a type of loan in which the loan tenor normally goes beyond 36 months which is 3 years and above.
With this in mind, let us find out what we need to understand to close these loan accounts. If we are getting any benefits out of it or is it better if we just let it run as it is?
How to Close a Personal Loan Account?
You can foreclose a personal loan account anytime you want, but the bank does not recommend pre-closure of the loan account.
Early closure of loans does not give much profit to the financial institutes. The reason is the loss of future interest.
That is why banks usually charge foreclosure fees Or foreclosure charges.
Some banks may be cheaper foreclosure charges than other banks. It is seen commonly that PSU banks have lower foreclosure fees.
Here is the personal loan closure process
1. Find out the foreclosure loan amount. You may need to meet the loan processing officer to know the exact amount.
The foreclosure amount would include the principal outstanding as of the date along with the accrued interest and pre-payment penalties.
2. After you get the closure amount, fill out the application form and submit it to the concerned bank official.
3. Make sure there is no overdue amount. Pay up the overdue amount if any.
4. If you have the sanction letter or loan approval letter, carry it along with you. It might come in handy.
5. Draw a cheque or a demand draft to pay the foreclosure amount.
| Here’s the loan pre-closure checklist |
|---|
| Application for loan closure: You may need to fill up the application form available over the counter. Or you may write an application to close the account. |
| Loan account: You may refer to your sanction letter or account statement to get the personal loan account. You may also refer to the loan processing officer to find the same. |
| Sanction letter or loan approved letter, if it’s with you, carry along. |
| Bring along your valid IDs which can be helpful for identification. |
| Cheque or demand draft to effect the payment. Post-closure of loan account When you have successfully closed the personal loan account, you should take care few other things post-loan closure. These include a loan clearance certificate or A no-due certificate from the bank. Getting a copy of the loan account statement in which your closure details are reflected. |
Online personal loan closure
Closing a personal loan account online? Is it possible to do so?
We have seen several cases. Some banks enable the closure of a loan account on their Internet banking platform.
The menu is available under the loan section. Namely, the State Bank of India has the facility of online personal loan closure. But does it work instantly? That’s another question.
The process of online personal loan closure is not instantaneous, the closure request will go to the branch interface and the concerned bank staff will close the account manually.
So, you can expect the closure of a personal loan to take a day Or so.
There’s another way…
If you are using a bank’s Internet banking. You can do a simple trick to close your personal loan account.
Login and access your net banking. Under the loans and advances section, find out the present loan outstanding.
Make the outstanding loan amount as low as possible. You may keep just ₹ 1.
Then contact your bank either directly to the manager or mail it to their official email ID.
You may come across words such as…
In the process, you may come across a few words which are related to personal loan account closure.
These words are
| 1 | Pre-payment penalty: It is the penalty bank imposes on you for early payment of loan EMIs. It may be in the range of 2 to 3 percent of what you pay up. |
| 2 | Foreclosure charge: It depends on bank to bank. Some banks’ foreclosure charge is inclusive of pre-payment penalty. Others do levy separately as a fee of loan foreclosure charge. It may be in the range of 2 to 3 percent of the total outstanding loan amount. |
| 3 | Accrued interest: An accrued interest is the amount of interest calculated on the loan outstanding since the last EMI. If there is an overdue EMI, accrued interest may be higher. |
Benefits of personal loan foreclosure
There are several benefits you can get from the early closure of a personal loan. Although you may pay charges such as prepayment penalties and foreclosure charges.
If your loan closure is at PSU banks, you may get better offers as their charges are cheaper.
| Benefits of loan pre-closure |
|---|
| Foreclosure of a personal loan might save future costs of interest. |
| More funds in hand due to the stoppage of monthly EMIs would give you better investment options. |
| Early closure of a loan might increase your overall CIBIL score, which ultimately lets you avail of various loan advances in the future. |
| Financial obligations cease to burden you and can lead to a debt-free lifestyle. |
You may get the standard personal loan closure application form at your bank. You can still write an application directly to the bank.
If you require a sample, here it goes like this…
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