Procedure to Follow While Closing a Loan

Introduction:

When you take a home loan, personal loan, vehicle loan, business loan, or any other type of loan, the process does not just end with you paying off the EMIs. While paying off the last EMI is a sigh of relief, you have to close the loan properly to put an end to it once and for all. Not going through the loan closing procedure can put you in financial or legal trouble with your lender or bank. To avoid any hassle, follow the guidelines specific to your bank with care. Read on to know more about the general guidelines for loan closing.

Checklist for loan closing:

Keep all your original documents in hand.

The first prerequisite in the procedure to close a loan is keeping all the necessary documents with you when you visit your bank for loan closing. These documents include:

• Your identity/ address proof like Aadhaar card/ PAN card
• Loan account number, loan statements, passbook
• Cheque/ demand draft in case of any outstanding loan amount

Obtain a No-objection certificate (NOC) / no-dues certificate (NDC).

Whenever you have finished closing your loan, you will need a NOC or NDC that work as proof that you have cleared all your EMIs. The NOC/ NDC state the lender/ bank has no legal right to the collateral/ documents you had given at the time of taking the loan. These documents help in avoiding any conflicts. Remember to take a NOC/ NDC after you close the loan.

Remove any lien on your property. 

Lien on a property is generally applicable in the case of home loans or vehicle loans. When your loan gets approved, the lender/ bank might put a lien on your movable or immovable property to ensure you do not sell the property and pay off your dues. Make sure to visit the registrar with a bank official to remove the lien Thus, after your home loan repayment, you must visit the concerned office to remove the lien against your property.

Procedure to close a loan in pre-closure

A loan pre-closure is the closure of a loan before its due date. To close your loan before it ends, you have to:

• Visit your bank’s nearest branch or get the loan closing done online if allowed. Carry the documents mentioned above.
• You might have to pay a pre-closure or penalty charge for closing the loan before time. Check with your bank about the foreclosure charges beforehand.
• The bank official might ask you a couple of questions or request other documents. You will also get a pre-closure form where you must fill in all your details correctly.
• On submitting the form and documents, the bank official will close the loan account. Then, you will receive an acknowledgement slip/ letter consisting of the loan clearance details.

Additional Read: 5 Ways Women Can Benefit from Taking Home Loans

Procedure to close a loan in regular closure.

• A regular closure is the closure of a loan near the end date of your loan tenure. To close your loan when it ends, you have to:
• Visit your bank’s nearest branch or get the loan closing done online if allowed. Carry the documents mentioned above.
• There are no penalty charges for a regular closure. The bank official might ask you a couple of questions or request other documents. You will also get a closure form where you must fill in all your details correctly.
• On submitting the form and documents, the bank official will close the loan account. Then, you will receive an acknowledgement slip/ letter consisting of the loan clearance details.

Note:

After loan closing, remember to take a NOC/ NDC duly signed by your bank. Remember to take back your original documents kept with the bank. These will include important collateral documents like the sale deed, conveyance deed, power of attorney, and the like.

Additional Read: How To Claim Income Tax Benefit On Loans

To sum it up:

The procedure to close a loan does not seem undoable once you know how to go about it. Remember, closing a loan is much better than leaving things unfinished. Without proper loan closing, you risk legal, financial, and CIBIL-score-related trouble.

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing.

ICICI Securities Ltd. acts as a referral agent to ICICI Bank Ltd. for loan related services & the loan facility is subjective to fulfilment of eligibility criteria, terms and conditions etc.

The contents herein mentioned are solely for informational and educational purpose.