Personal Loan

How to Close a Personal Loan: Regular Closure and Pre-Closure


Most people prefer applying for a personal loan in case of any financial emergency. A personal loan can be used for anything, whether it’s for a medical emergency, to pay for a move, to buy gadgets, or to pay for your kids’ education. It is more flexible with interest rates, EMIs, and payment processes. Hence, it is a common choice. 

However, once it is time to repay the loan completely, it is necessary to follow the proper methods to close a personal loan

Why is it important to close a personal loan scheme?

  • It is necessary to close a personal loan so that there are no debts against the borrower’s name. 
  • Additionally, it will help maintain a good credit score. A better score will aid future loan opportunities or financial aid from the banking facilities. 

There are three options available for closing a personal loan: regular closure, part payment, and pre-closing a personal loan

What are regular closures, part payments, and pre-closures?

A person can opt for regular closure when they have repaid the last impending EMI on the loan they have taken. After clearing all the dues, they need to procure a loan closure certificate from the lender. 

Part-payment is when a person does not pay the entire amount but brings down the principal amount significantly. When there is a reduction in the principal amount, there is also a reduction in the EMIs paid. The rate of interest also decreases. However, one drawback is, many banks do not allow part-payment when it comes to personal loans.

A pre-closure takes place when the borrower decides to pay off the due amount before the set tenure. In such cases, a person does not have to pay all of the EMIs agreed upon at the start of the process. They need to clear the dues up to the present month only. Banks usually charge additional fees for this process, called foreclosure fees. 

What is the process involved in closing a personal loan?

Here are the steps that one needs to be aware of when opting for a regular closure:

  • After paying the entire EMI, contact the bank to let them know.
  • Furnish the lender with all the necessary documents, which are usually the loan account number and identity proof. Identity proof can be a passport, an Aadhaar card, a voter ID, etc.
  • Make sure to clear any outstanding amounts as well.

The lender will issue a No Objection Certificate, or NOC, after verifying all the records. The NOC will serve as proof of the closure of all future transactions.

Here are the steps to follow if a person wants to pre-close a personal loan. The process is slightly more complicated:

  • For closing a personal loan, visit the nearest branch in person and get in touch with a bank executive. The process varies from bank to bank. One must familiarize themselves with pre-closing a personal loan before opting for it. 
  • A foreclosure form is usually available at the branch. Fill in the form carefully with all the necessary details.
  • As with regular closing, when pre-closing a personal loan, one has to carry identity proof. They should keep the bank statement ready, pointing at the complete payment of all EMIs to date. Keep other loan documents at hand as well.
  • One also needs a pre-payment statement, which one can easily obtain in advance from the bank.
  • On successful verification and submission of the document, one can pre-pay the dues by issuing a cheque or demand draft.
  • On settling all the dues, the bank will issue a No Objection Certificate (NOC). In some cases, they also issue a Payment of Dues Certificate. The borrower needs to secure that to use it as a reference in the future.

Should a person opt for pre-closing a personal loan?

Is it safe for an individual to pre-close a personal loan? Does it impact their credit score negatively? Here are some of the advantages and disadvantages of pre-closing a personal loan.


  • It has a positive impact on a person’s credit score. It indicates a person is financially capable of paying off their debts. It is a bonus point when it comes to future loan requests from the borrower to the lender.
  • Payment of the entire amount in one go helps the borrower avoid additional interest fees and EMI charges. 
  • Payment of the debt amount every month can also prove to be mentally taxing. Hence, many people opt for pre-closing a personal loan to get out of the hassle of the monthly payment.


  • The borrower needs to pay a foreclosure charge. It differs from bank to bank and is usually not a very large amount.
  • By paying a large part of the loan in cash, a person is also compromising their financial stability. It is always preferable to keep cash on hand in case of emergencies.

The Bottom Line

While pre-closure of personal loans has its advantages, regular closure is a good option as well. Bearing the EMI charges for a continued period of time is also a testament to the financial capability of the borrower. It increases credibility as much as a pre-closing personal loan does. Hence, it is up to the borrower to decide which one they wish to choose. 

Either way, after completing the payment of the loan – it is important to collect all the original documents submitted to the bank during the start of the process. Also, the borrower must ask the lending organization to provide an updated credit score after repayment of the loan.

Get in touch with Piramal Finance to inquire about any personal loan-related documents.