Preclosure Of Personal Loan Will Affect Cibil Score



 

Banks and lending institutions offers a loan for specific tenures to its clients and adjust its asset liability management (ALM) accordingly. Therefore banks demands for a regular and timely repayment of EMI and dues. Since the nature of loan is unsecured in this case therefore the pre-closure of the personal loans should result in a positive impact in your CIBIL report. As you already have a CIBIL score of 830 so you don’t need to worry about score while planning for home loan in near future. Multiple unsecured loans can have bad impact on the CIBIL score. Since you are planning for a home loan in 2 months therefore it is better to opt for a pre-closure of personal loan to reduce the extra leverage taken over your financial position.

Pre closure may not directly affect your score. However, your chances of creating a good credit history, which will result in an improved score, will be affected. Even if you have the required funds, it is advisable that you continue to make your payments on time and close you account on the initial due date. Plus, you will save on the 4% charge.

When we tender our loans before time, we believe we are doing the right thing as a borrower. But contrary to popular belief, foreclosing or prepaying a loan can actually cause your credit score to take a beating. Let us examine in detail.

At times picking up a loan seems the obvious thing to do. Borrowing can be fun till the time your EMIs show up. However, soon, repaying debt becomes a daunting task. People begin to look for reasons to prepay their debts. Ironically, it can lead to a drop in your score.

Avoid prepaying a loan to save your score from declining. Let’s say currently credit score is 710 but after a prepayment it drops about 20 points. Assuming you do not deal with credit for some time and therefore your score remains below par at 690 for that time. However, if it isn’t prepaid, then with time the score will certainly get better if repaid on time every month.

Keeping the loan active shows you can successfully manage your credit and therefore it helps boost your score. Even if you have enough money, look for avenues to invest elsewhere and build your wealth rather than rushing to pre-close debt accounts. At least, let the secured loans live on your credit report for the entire tenure.

Credit score is calculated based on various parameters like the number of loans/credit cards – open and closed both, outstanding balance and payment history against each account, number of enquiries. The foreclosure of your Personal loan would have an impact on your credit score based on its linkage with various such factors.

Personal loans are high interest loans and it would be a good option to repay the outstanding balance if you have the capacity to repay.

Your credit score will suddenly experience a hike. if you are having a bad credit score then it is a good way to increase your score.
it is better to access the account and do the pre-payment through online portals of the lenders. try any nbfc to reduce any kind of hassle and avail faster process. you will also be able to apply and access the loan account from any corner of the country, be it bangalore or any other place.

Procedures to pre-close a personal loan

 Loans have become a necessity nowadays. With the development in the process, acquiring loans from banks or financial institutions has become easy. Though it is believed that taking a loan takes time and efforts. Same is the case when you want to close a loan. There are two ways in which personal loan can be closed. It can be closed at the end of the loan tenure or it can be closed prior to the loan tenure. The former is called closure and latter is called foreclosure.

Loan closure:- Paying off the last installment doesn’t mean a closure. When a person takes a loan, an account is created in the name of the person and this needs to get closed once your loan is repaid or over. This is termed as loan closure.

Foreclosure:- After 6 months of sanctioning the loan, all banks provide the borrower an opportunity to pay the remaining principal amount with a small percentage of the interest for closing a loan. This is termed as a foreclosure.

Procedure to close a Personal loan

If you are wondering how to close a loan then here is the answer to it. Follow the below-mentioned steps to close a loan.

  1. The first step is to check the cash balance in your account. Make sure you have enough balance in your account to close the loan.
  2. Go to your respective bank’s website and select the option of the closing of loan account from the list mentioned in the e-services tab.
  3. After filling in all the necessary details, a request from your side is sent to the bank requesting them to close the loan.

Various types of loan closure:-

There are four different categories of loan closure. They are

  • Pre-closure
  • Regular closure
  • Bad loan closure
  • Settled loan closure

Let us discuss these in brief:-

  1. Pre-closure:- As the name suggest this type of closure means to close the loan before completion of the loan tenure. For this, different banks have different criteria when it comes to paying off the loan early.
  • No pre-closure charge or penalty is taken in case of loans on the fixed and floating rate of interest. It is completely the choice of the bank to charge a pre-closure penalty or not because in most cases banks and financial institutions levy a heavy prepayment penalty. Talking about the right, ideally, you should not be charged with any kind of penalty or charge for paying off your loan before time with your own funds.
  • For pre-closing a loan, it is necessary to read all the necessary rules and regulations carefully. You should make sure whether any payment charges are applicable or not, or whether prepayment of loan is allowed or not. For this, you should clearly read the sanction letter.
  • After a loan closure, don’t forget to collect the following documents from the bank. These documents loan statement for the entire loan tenure which shows the principle amount include the and interest paid, the loan closure letter stating that loan has been closed by the bank. Apart from these make sure that your bank has sent your closure request to CIBIL and handed you all the original documents.
  • Getting an NDC (No Dues Certificate) is a must. On repaying your due amount, obtain an NDC from your bank. This document states that you have paid all your outstanding dues to the lender which is the bank. This document includes your name, your account number, and details. This document will serve as a proof that the lender no longer has any claim over you or your collateral.
  • Pre-closing a loan makes your chances of creating a good credit history. A good credit history affects your goodwill and improves your future chances of obtaining a loan.
  1. Regular closure:- It is a type of closure where the borrower after paying all the installments, visit the loan branch of the bank and officially close the loan and obtain the closure letter.
  2. Bad loan closure:- This is a case where the bank’s gen rally write-off the loan when the debtor has become bankrupt. It takes place where the amount owned by the person remains doubtful to be paid.
  3. Settled loan closure:- settling the loan indicates that you have paid all the installments on time. This boosts your credit score.

Things to complete while closing a loan:-

  • Take back all your original documents from the respective lender.
  • Make sure to obtain a no objection certificate which will state that you have paid all the dues and lender doesn’t have any right to your property.
  • Get lien removed on the property from registrar office. It is a legal right against the asset which is used for securing a loan when the property is sold.

Make sure your CIBIL report is updated. When all your dues are paid, the bank should inform CIBIL for updating the account information and to improve your credit score.

 
 

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