A personal loan might be utilised to aid with an emergency necessity. It can be used for a variety of purposes because it is not tied to an end-use requirement like a home loan or a car loan. It can be used to renovate your home, fund a wedding, go abroad, buy high-end devices, pay down a home loan, and so on.
Personal loans currently have interest rates that range from 11.25 percent to 35.1 percent. Your lender will determine your personal loan rates depending on your credit score, income level, and other liabilities you are responsible for. You may have noticed that because a personal loan is an unsecured loan, it usually has a high interest rate.
Many people advise that if you want to reduce your debt, you should pay off the loan with the highest rate of interest of personal loan first. If you have personal loans as well as other types of debt, such as a home loan or a vehicle loan, your first goal should be to pay off the personal loan, since this will just add to your debt burden.
Closing a Personal Loan in Different Ways
You have the option of repaying the loan on a regular basis until the end of the term or pre-closing the loan to significantly lower your debt burden.
- Prepaying a loan
- Prepaying a portion of the loan
Closing a personal loan entails more than simply repaying the amount borrowed; it also necessitates following certain steps. Continue reading to learn more about the steps involved in closing a personal loan.
Procedure for Closing Your Personal Loan on a Regular Basis
The term “regular closure” refers to when a person pays off a debt after it has been paid off for the entire term. After you’ve paid off your loan in full, you’ll need to complete a few steps to close it.
- It’s a good idea to contact the bank after you’ve paid all of your loan EMIs to see whether any outstanding debts have been cleared.
- If everything is in order, you can schedule a time to go and complete the remaining formalities. If everything is in order, the bank will usually issue you a closure certificate by mail or email.
- You must bring your ID evidence, loan account number, and a check if there is a balance to be paid to the bank. Before closing your account, the bank representative will verify your documents and loan account.
- You can also contact customer service for assistance in repaying your personal loan.
Pre-closure Procedure for Your Personal Loan
Pre-closure or prepayment refers to repaying your entire debt before the term ends. Pre-closing a loan can result in a penalty from some lenders. Pre-closure, on the other hand, will help you reduce your rate of interest of personal loan and debt burden. The procedures for pre-closing your personal loan are outlined below.
Check for a penalty clause before proceeding with pre-closure, and make a computation of the advantage you may receive by doing so. The general rule is that pre-closure is more favourable if you decide to do it sooner in the loan’s term. However, this is also the time when pre-closure penalties are the most severe.
Prepayment of a portion of the loan
You may be eligible for a bonus or a windfall gain from another source that you’d like to spend toward paying down your loan. However, it’s possible that the sum won’t be enough to pay off the entire loan. That is when you can choose to pay down a portion of your loan.
There could be certain consequences if you pay off a portion of your loan early. Keep an eye out for them. Lenders may also limit the quantity of part-prepayments that can be made on a regular basis. Each of these requirements varies per lender, so it’s a good idea to double-check before making a prepayment. Your personal loan account would not be closed as a result of this. After part-paying the loan, you may have a few more EMIs to pay, which must be paid promptly.
Because you don’t have any assets committed with the bank that need to be released, closing a personal loan is a pretty simple process. Closing your personal loan is a vital responsibility that should not be overlooked. To avoid any issues with your credit, be informed of the procedures involved in correctly completing your loan. Visit Finserv MARKETS to know more!