If you’re currently paying EMIs on a personal loan and want to get rid of it early, you’re not alone. Many people in India want to free themselves from loan burdens as soon as possible. By closing your personal loan early, you can save on interest and improve your financial health. But there are certain steps, rules, and charges you should know before taking this smart step.
Let’s understand everything simply and clearly.
What Does It Mean to Pre-Close a Personal Loan?
Pre-closure means you repay the entire loan amount before the full loan tenure ends. For example, if you took a loan for 5 years but decide to repay it in 2 years, it’s called pre-closure. This helps you avoid paying future interest and brings peace of mind.
Who Can Pre-Close a Personal Loan?
Most banks allow pre-closure only after you have paid at least 12 EMIs. Some lenders may allow early pre-closure depending on the terms of your loan agreement. If you try to close the loan before the minimum lock-in period, the bank may charge a penalty or not allow it at all.
So, check your loan agreement carefully or call customer care before planning.
Step-by-Step Process to Pre-Close Your Personal Loan
Follow these easy steps to close your personal loan:
1. Visit the Bank Branch
Most banks do not offer personal loan pre-closure online. You must go to the nearest branch of your lender.
2. Carry the Required Documents
Take these documents with you:
- Loan account number
- Last EMI payment receipt
- Photo ID (Aadhaar, PAN, Passport, etc.)
- Your cheque or mode of payment for the remaining amount
3. Fill the Pre-Closure Form
At the branch, ask for the pre-closure request form. Fill in the details and attach the documents.
4. Pay the Remaining Amount
Pay the outstanding principal, along with any interest or pre-closure charges. This may also include GST.
5. Collect the Payment Receipt
After payment, take the official payment receipt from the bank as proof.
6. Receive NOC and Loan Closure Certificate
The bank will issue a No Objection Certificate (NOC) and a Loan Closure Certificate in a few working days. These documents confirm that your loan is officially closed.
Charges You May Have to Pay for Pre-Closure
Banks and NBFCs charge a fee if you close your personal loan early. The amount depends on when you are closing the loan.
Here’s a general idea:
- 13 to 24 months: Up to 4% of the outstanding amount
- 25 to 36 months: Around 3%
- After 48 months: Many banks do not charge anything
These rates may differ based on the bank, loan amount, and loan type. Don’t forget that GST (currently 18%) is also added to the pre-closure charge.
Pro Tip:
Contact your bank before going for pre-closure and ask about:
- Any penalties
- Applicable interest
- Processing charges
- Timeline to get the NOC
What Should You Do After Loan Pre-Closure?
Even after paying the full loan amount, your job is not done. You must follow these important steps to stay safe and protect your credit score.
1. Collect NOC and Closure Certificate
These are official documents from the bank saying you don’t owe anything now. They are proof of closure and help avoid future issues.
2. Check Your Credit Report
After a few weeks, check your credit report (from CIBIL, Experian, etc.) and see if your loan is marked as ‘closed’. If not, raise a complaint.
3. Save All Documents
Keep all papers related to the loan, including:
- Loan agreement
- Repayment receipts
- NOC
- Closure certificate
These documents may be needed later for future loans or credit card applications.
Benefits of Pre-Closing a Personal Loan
- Save interest money: You don’t have to pay interest for the remaining months or years.
- Improve credit score: A fully paid loan reflects positively in your credit report.
- Better financial health: You free up your income and can focus on savings or investments.
- Peace of mind: No more monthly EMI stress.
When Should You Avoid Pre-Closure?
While pre-closing a personal loan is mostly a good decision, it may not always make sense. You may avoid it in these cases:
- If your bank is charging high pre-closure fees
- If the loan tenure is already near the end
- If you’re using emergency savings or breaking investments for the payment
- If your loan has a very low interest rate
Always calculate the total savings versus total cost before deciding.
Sources: Navbharat Times, BankBazaar
Disclaimer: Loan rules and charges may differ from bank to bank. Please check with your lender for the latest terms and exact charges before pre-closing any personal loan.
