Even though a personal loan is an unsecured form of credit, it is the easiest and convenient form of help during emergencies. This is why personal loans attract high-interest rates. And, it is advisable to repay the loan as soon as possible to avoid debt burden. There are a lot of questions that come to your mind after you take a personal loan. One of the common questions searched is how to close a personal loan? In here, know the answer to this question and more.
To start with, there are three ways to close a personal loan.
→ Regular closure
→ Pre-closure
→ Part-payment
Regular Closure
In this method of closing a personal loan, the borrower makes regular payments and pays off the loan in the time period mentioned in the loan agreement.
Charges for Regular Closure
There are no charges associated with a regular closure of a personal loan. The customer only bears the interest cost.
However, please note that when you look for the answer to how to close a personal loan, it does not only mean that you’ll be paying the amount you borrowed. It also includes following a certain set of procedures.
How to Close a Personal Loan | Step-by-step guide for Regular Closure
Step-1: Approach the bank and inform them about the closure of your loan. Do this once you make the last instalment.
Step-2: Make sure you carry your ID proof, a cheque with the final payment(if any), and the loan account number when you visit the bank. The bank will verify the documents before further proceeding for the closure.
Step-3: A NOC(No Objection Certificate) will be issued against the borrower after the procedure is completed. This certificate will state that the borrower has repaid the loan and does not have any dues.
Pre-Closure
A pre-closure is when you repay the loan before the loan tenure ends. In this way of closing a personal loan, you can end up saving a lot on interest costs. The banks have different lock-in periods before you can close the loan. Moreover, the banks charge a pre-closure charge to compensate on the interest amount lost.
Charges of pre-closure of a personal loan
Here is a list of the charges of pre-closure of different lenders.
| Name of the bank |
Lock-in period |
Pre-closure charges |
|
|
Allowed after 3 EMI’s |
3% of the outstanding principal + GST |
|
|
Allowed after 12 EMI’s |
• 13-24 Months – 4% of Principal Outstanding
• 25-36 Months – 3% of Principal Outstanding
• >36 Months – 2% of Principal Outstanding
|
|
|
Allowed after 6 EMI’s |
5% of the outstanding principal + GST |
|
|
Allowed after 1 EMI |
|
|
|
Allowed after 12 EMI’s |
5% of the foreclosure charges + GST |
|
|
Allowed after 6 EMI’s |
2% closure charge on more than 25% payment of the loan |
|
|
Salaried: Allowed after 12 EMI’s
Self-employed: Allowed after 6 EMI’s |
4% of the principal outstanding+GST |
|
|
Allowed after 12 EMI’s |
5% of the principal outstanding amount |
|
|
Allowed after 0 EMI’s |
3 – 7% of the principal outstanding |
|
|
Allowed after 6 EMI’s |
• 7 – 12 months – 5 – 6%
• >12 months – NIL |
|
|
Allowed after 12 EMI’s |
• 13 to 18 months – 5% of Principal outstanding + GST
• More than 18 months – 3% of Principal outstanding + GST |
|
|
Allowed after 12 EMI’s |
• 13 – 24 months – 4% of principal outstanding
• 25 – 36 months – 3% of principal Outstanding
• 37 – 48 months – 2% of principal outstanding
• >48 Months- Nil |
Now that you know the answer to the question of how to close a personal loan, here are the factors that are considered when closing one.
How to close a personal loan | Step-by-step guide for Regular Closure
Step-1: Approach the bank and inform them about the closure of your loan. Do this once you make the last instalment.
Step-2: Make sure you carry your ID proof, a cheque with the final payment(if any), and the loan account number when you visit the bank. The bank will verify the documents before further proceeding for the closure.
Step-3: An NOC (No Objection Certificate) will be issued against the borrower after the procedure is completed. This certificate will state that the borrower has repaid the loan and does not have any dues.
Part-payment
Part payment of a personal loan is when you pay off a lump sum amount which is not equivalent to the total principal outstanding amount. Part payment is another way of saving on interest costs. This is because part payment of a personal loan brings down the unpaid principal amount, which in turn brings down the interest cost. This also helps in bringing down the EMI’s.
Part-payment personal loan charges
Part-payment attracts a penalty which can range from lender to lender. Here is a list of what the lender charges if you make a part-payment.
| Name of the bank |
Lock-in period |
Condition |
Pre-closure charges |
|
–
|
Up to 40% of loan amount every year is allowed |
3% of the outstanding principal + GST |
|
Allowed after 12 EMI’s |
• Part payment is allowed twice during loan tenure.
• Part payment is allowed only once in a single financial year.
• At any point in time, each part payment will not exceed 25% of Principal Outstanding. |
• 13-24 Months – 4% of Principal Outstanding
• 25-36 Months – 3% of Principal Outstanding
• >36 Months – 2% of Principal Outstanding
|
|
|
–
|
–
|
–
|
|
|
–
|
Part payment of a Personal Loan is when you pay at least 3 EMIs at one go |
• Part payment after the first EMI- NIL
• Before first EMI- 2%
• Pure FLEXI and Flexi loans-NIL
• Total amount paid in a year is less than 25% of the principal outstanding- NIL
• If more than 25%- 4% plus applicable taxes on principal outstanding |
|
|
–
|
–
|
–
|
|
|
Allowed after 6 months of seasoning |
• A maximum of 25% of the principal outstanding (without any charges) is permissible within 6 months
• Maximum part payment permissible (with charges ) is 50% of the principal outstanding |
2% (of the amount paid) + GST |
|
|
–
|
–
|
–
|
|
|
Allowed after 12 EMI’s |
A maximum of 20% of the current principal outstanding
|
–
|
|
|
– |
– |
– |
|
|
– |
– |
– |
|
|
Part payment of Loan is allowed post repayment of 12 EMI’s |
• 12 – 24 months- You can pay max. 20% of the principal outstanding
• 25 – 36 Months- 20% of principal outstanding
• 37 – 48 Months- 25% principal outstanding
• 49 – 60 Months- 25% of principal outstanding |
1% plus applicable taxes on part payment amount paid |
*N/A- Not allowed
How to make a part payment?
To make a part payment of a personal loan, you need to visit the bank and inform them the same. After you submit your request, you will be told the revised account mandate/instructions.
This results in either a reduction in the EMI amount for the remaining tenure or reduction in tenure with the same EMI amount. You would need to continue to repay the subsequent EMIs as per the repayment schedule shared by the bank.
All in all, closing a personal loan, or in fact, any form of loan is important to become a responsible individual. Therefore, it is important to close the loan in the right way to avoid any future problems.
If you have any queries relating to how to close a personal loan, you can comment below and we will be happy to help you.
Looking for personal loan EMI calculator? Use Personal Loan EMI Calculator to calculate instalment and total interest payable of the loan amount. Calculate EMI with personal loan calculator in 3 steps.
