Failure to close your loan as per rules can lead to a fall in credit scores
Proper closure of loan is a crucial step, be it for home loans, where the loan borrower’s home is mortgaged to the lender, car loan wherein the vehicle is hypothecated or even personal loan, which is taken with minimum documentation for no defined usage.
When it comes to closing a loan there are mainly three ways to close that include closing a personal loan i.e., regular closure, preclosure, or called foreclosure and part-payment. The closing of a loan in a regular way consists of paying your equated monthly installments (EMI) with any delay. A borrower can choose to close the loan early before the repayment tenure is complete under a preclosure of the loan.
This happens in a scenario where a borrower has received a huge amount of money at once and which is also close to the remaining loan or outstanding loan amount. Whereas under part-payment a loan borrower pays an amount that is more than a fixed number usually more than two of EMI’s depending upon the bank.
This generally leads to the lower outstanding principal and thereby the accrued interest. One can follow this option if they have additional money but still not enough to repay the complete loan amount. Also, for pre and post-closure, every bank has its own standard checklist and which needs to be adhered to by the loan borrower at the time of closing.
If a borrower fails to close the loan properly or fails to repay EMIs on time she may have to face certain consequences like a poor performance of credit score. This also means a borrower might find it hard in the future to get a loan on the basis of a low credit score.
As a borrower, it is important to receive a No Dues Certificate (NDC) from the lender, which indicates that the borrower does not have any obligation to the lending entity and the concerned loan is closed finally.
Post loan closure, bank’s NOC, insurance copy and a Regional Transport Office (RTO) form has to be submitted to RTO to remove the bank’s hypothecation of the vehicle.
Also collecting a copy of the loan account statement with principal and interest repayment certificates should not be missed out by the borrower. In the end, the borrower should not forget to collect the original documents that were submitted to banks or financial institutions as collateral while availing of the loan.