Pre-closure is a facility given by the banks, wherein one can pay off their loan amount in full before the end of the loan tenure. Choosing such an option would be extremely helpful for those individuals who are looking to end their debt rather than paying monthly instalments. Before choosing such an option, you must be aware that such a facility comes with penalty charges about you must be aware of. Besides knowing the penalty charges, you should also look at the various aspects of pre-closing car loans and how it could affect your finances.
When pre-closing your car loan makes sense?
As we have already mentioned, pre-closing comes with a penalty charge. So, before pre-closing your car loan, you must consider the approximate penalty charges involved in doing so. Make sure that the penalty amount should be reasonable compared to the total interest to be paid.
You should consider to pre-close your loan only when you have paid a few installments, not when you are at the end of the payment term. Doing so will not be a good idea as you will be charged an extra penalty amount.
Calculate pre-closure penalty charges
Remember penalty charges on pre-closure of your car loan may vary from one financial institution to another. Therefore, it is recommended that you must make use of a prepayment calculator to calculate the potential penalty charges. You can find the calculator online on the bank's website or FinTech web portals.
The procedure to pre-close your car loans
Follow the given below procedure to pre-close your car loan.
Step 1: Firstly, calculate the total repayment amount along with the penalty charges for pre-closure.
Step 2: Gather all the documents required to pre-close your loan. Some of the important documents that are required include the registration book (RC), insurance certificate, tax certificate, emission certificate, etc.
Step 3: Now, pay the amount to the bank by visiting a branch directly. You can also check with the bank to confirm if you can pay online or not.
Step 4: After that, you need to collect all the car loan termination documents from the bank. Some of the key documents to be collected after pre-closure of car loans are given below.
Step 5: After all the documents have been collected, now you need to visit the Regional Transport Office (RTO) to remove the hypothecation from the car’s registration. For this, you will need to provide a copy of the NOC and Form 35 to your respective RTO. Make sure that you carry all the documents while visiting the RTO office. The documents that you will need include your RC book, license, pollution under control (PUC) certificate, insurance, etc.
Step 6: After that, your RC book will be updated by the RTO stating that the hypothecation is removed from your car. During this period, you could use the RTO acknowledgment receipt in the place of your RC book.
Step 7: Provide a copy of NOC and Form 35 to your car insurer to remove hypothecation from your insurance documents. Once the documents are approved, get the acknowledgment copy provided by the insurer.
Important things to consider before pre-closing your car loan
You need to consider the following things beforehand while opting for pre-closing your car loans.
Pitfalls to avoid while pre-closing your car loan
Here is a list of pitfalls that you must avoid while pre-closing your car loan.
Considering all the things we have mentioned here, pre-closing a car loan is not a bad idea if done in the right way. However, you must weigh-in the benefits and costs associated with the process before making the final move.