Loan Foreclosure: When we take a loan, we pay the loan amount in the form of monthly installments (EMIs) for a fixed period. But apart from monthly installments, you can also close your loan account by paying a lump sum amount.
Suppose you have taken a loan for 12 months and have paid the installments for three months, but in the fourth month you want to close your loan by paying the remaining loan amount together, then it is called loan foreclosure in banking language.
Loan Foreclosure Process
Loan foreclosure means closing the loan before the scheduled time. There are some easy steps to complete this process, through which the loan can be closed.
Step 1: Submit the application form
To close the loan prematurely, the customer first has to apply to the bank or finance company in which the customer has a loan account. In this application, you have to include a copy of your loan account number, PAN card number and address.
Step 2: Pay the outstanding loan amount
After applying, the bank informs you about the remaining loan amount. This amount is given keeping in mind the date and interest rate when you decide to foreclose the loan. You can pay this outstanding amount through cheque or online transfer.
Step 3: Complete the foreclosure formalities
When the bank receives the entire outstanding amount, it completes the loan foreclosure formalities. After this, the customer’s monthly installments (EMIs) are stopped. Along with this, the customer’s original documents and other related documents are returned to him within 10-15 days.
Step 4: Get No Dues Certificate
Apart from the original documents, the customer must not forget to obtain a no dues certificate from the bank. This certificate should contain the customer’s name, address and the fact that the customer no longer has any dues. This certificate confirms loan foreclosure.
Apart from this, keep these things in mind:
- Know the type of loan – Before foreclosing your loan, know the type of loan you have. There are no charges for foreclosing a floating rate loan, but there may be some charges on fixed rate loans. These charges are added to the foreclosure amount.
- Documents checklist – Make sure all the documents are returned to you in good condition. Match the documents and ensure that no document is missing or damaged.
- Inform rating agencies – After loan foreclosure, immediately inform rating agencies so that they can update your loan details in their records. This will help you in your credit score and future loan processing.
Benefits of Loan Foreclosure
- Saving on interest – When you close the loan early, you can save on interest costs in the long run. This can be beneficial for you as paying less interest improves your financial position.
- Improvement in Credit Score – Loan foreclosure can improve your credit score as it shows that you have repaid your loan on time and your financial position is stable.
- Financial freedom – Closing the loan early gives you financial freedom, and you can focus on your upcoming expenses. The removal of the loan burden gives you mental peace.
Loan foreclosure can be a crucial step that can give you financial freedom and peace of mind. For this, you need to follow the right process. From application to payment of dues and obtaining a no dues certificate, it is necessary to complete every step correctly. Apart from this, it is also important to have complete information about the type of loan and charges, so that the foreclosure process can be completed without any problem.
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