Loan Closure Formalities That You Should Know

Last Updated : July 1, 2020, 2:16 p.m.

Individuals opt for loans to fulfill their various needs. And there are so many kinds of loans that Banks, Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) provide, such as Home Loan, Personal Loan, Car Loan, Gold Loan, Loan against Property, etc. Especially in the current digital age, the loan process has become much quicker and easier than before. Anybody can apply for a loan from his phone or laptop. But the number of individuals who know how to apply for a loan is quite higher than the individuals who know about the formality to do after the loan is paid off in full.

A lot of people don’t have any clarity about this aspect – Loan Closure Formalities. And knowing this aspect of the loan is as important as knowing other aspects. Like, you opt for a loan, paid all EMIs on time, but now confused about what to do after paying the last EMI. Well, to get you out of this confusion, we will be telling you about all the formalities regarding the closure of different loans such as personal loans, home loans, car loans, gold loans, etc. So, let’s start knowing more about it.

Let’s Know about the Loan Closure First!

When you opt for any loan facility from any lender, you need to repay the loan within a fixed tenure via Equated Monthly Installments (EMIs). Other than this, you can also prepay or foreclose the loan amount before the pre-decided tenure. So, when you pay off all the outstanding balance of your loan, your loan gets closed. This is known as the loan closure.

But there are some formalities you need to do after you paid the loan in full, irrespective of what kind of loan you have taken, and it is important to know about each of them. So, we will be telling you about the closure formalities for each of the loans so that you don’t face any difficulty while closing them. We will start with a Home Loan.

Home Loan Closure Formalities

Home Loan is one of the most popular loan facilities among Indian customers as everybody wants to own their homes but not everybody has the money for it. With a home loan, an individual can opt for the loan amount and purchase his or her desired home. And there will be so much satisfaction and pleasure after you paid the final installment of your loan.

But it’s important to know the home loan closure formalities as it is a secured loan, and without completing these formalities, you will not get the ownership of your home. So, there are some points you need to keep in mind after paying the loan in full. Have a look at them below!

Get all Your Original Documents from the Lender

At the time of applying for the home loan , the lender must have asked you for the original documents related to your property. These documents will include Sales Deed, Title Deed, Loan Agreement and Power of Attorney. Generally, the lender sends these papers to your address via post, but you should go personally and collect all these sensitive documents by yourself so that you can check if any document is missing. You should make sure that the lender hasn’t lost your original sales deed and other important documents.

After receiving the documents, the lender will also ask you to sign an acknowledgment receipt to ensure that you have received all the documents safely.

Take a “No Dues Certificate” (NDC) from the Lender

One of the most important formalities to do after paying the home loan amount in full is to obtain the No Dues Certificate (NDC) from the respective lender. This is also known as the ‘No-Objection Certificate’ (NOC). This legal document is a proof that you have repaid the full loan amount and penalties if any. This document generally mentions important details like your property address, name of the applicants, loan amount, loan account number, date of starting, and the closure of the loan. While obtaining the NDC, You should also make sure that it is duly signed and has the official stamp of the lender.

Get the Lien Withdrawal

It is important to get the lien withdrawn from your property. You must be thinking about what this ‘Lien’ is? It is a legal document from the lender’s side by which you are restricted to sell the property before paying the entire loan amount. But if you have paid the loan amount in full, you should ask for the lien withdrawal from your property. This process generally takes a week and one of the officials from the lender’s side will accompany you to the Registrar’s office to get it done fast.

Get an Updated Non-Encumbrance Certificate

After obtaining the lien withdrawal on your property, you should obtain the updated non-encumbrance certificate to guarantee that the property is legally yours now. It is a legal document that will state all the financial transactions related to your property and the repayment of the loan will reflect in the updated certificate. It will also state that you don’t owe anything to the bank.

Get Your Credit Report Updated

Suppose you want to opt for a personal loan or a credit card after you paid your home loan in full but your credit report still shows that you have due on your home loan. To save yourself from this situation, you should get your credit report updated once you have paid the home loan in full. After 30-45 days of making the repayment, you should check in your credit report whether the status of home loan repayment is shown fully paid or not.

Personal Loan Closure Formalities

A personal loan is an unsecured loan provided by the banks and financial institutions to individuals who need funds so that they can fulfill their various personal needs. Personal loans are short-term loans and an individual gets a maximum period of 5 years to repay the loan amount. But if someone wants to foreclose the loan before the fixed tenure, he or she can do it by paying a nominal fee for this. So, what should an individual do after the loan is paid off in full? Well, there are a few steps (formalities) that you need to take after paying the last EMI of your personal loan. We are showing them below. Check them out!

1. After paying the loan in full, you should contact your lender to check if all the outstanding amount is cleared. Sometimes, you might have some penalty on the payment you made late once or some other outstanding charge on missed EMIs. If there is an outstanding amount, clear that first. After this, you should complete the personal loan closure formalities.
2. Generally, after the entire loan amount is paid off, the lender sends the closure certificate either via post or email. But it would be better for you to go there by yourself.
3. While going there, you must carry your ID Proof, Loan Account Number, and a cheque (in case any amount is pending as informed by your lender). The lender will authenticate all your details and loan account number to verify there is no pending amount from your side.
4. Once the loan closure formalities are completed, you should get the No-Objection Certificate (NOC) from your respective lender. This is the legal document stating the closure of your loan. It will mention that you have paid all your dues and the entire loan amount is repaid.
5. After getting the NOC from the lender, you should check in your credit report that your loan closure is updated in it.

Car Loan Closure Formalities

Car Loan or Four-wheeler loan is also one of the popular loan products among the customers who want to purchase their dream car. With a car loan, you can opt for the loan amount and repay it within a fixed tenure via EMI. Suppose you took a car loan six years back and now you have paid the last EMI. You must be having so much joy at this moment because of clearing your loan amount. But there is something quite important that you need to do just after paying your last EMI. To save yourself from any trouble in the future, you should check the steps we have shown below.

Seek Final Car Loan Account Statement

Whether you have paid the loan in full before the fixed tenure or by the end of the fixed tenure (regular repayment), the first thing that you need to ask from the lender is the Car Loan Account Statement. This financial document will entail all the financial transactions related to your car loan, from the beginning to the closure.

Get the No-Objection Certificate and Other Documents

After getting the final car loan account statement, you should ask for the No-Due Certificate or No-objection Certificate from the lender. This vital document will state that you have no dues left and paid all the outstanding loan amount. Usually, lenders send this document to you via post or email, and both to the respective RTO (Regional Transport Office) and the Car Insurance Company. Apart from NOC, you should also ask for Form 35 as soon as you close the loan in full. This form will help you in the removal of the hypothecation clause from your RC (Registration Certificate).

Get Car Insurance Policy Updated

Your car insurance company has all the information about the Hypothecation Clause. As soon as you get the NOC or NDC from your lender, you should inform your car insurance company so that it can be updated in your insurance policy. This will help in getting your hypothecation clause removed. As soon as you submit the NOC, the company will issue an updated Insurance Policy with your name as the owner.

Get the Hypothecation Clause Removed

When a lender provides the car loan, it gets the car hypothecated in its favour so that in case of any nonpayment or default, the lender could seize your vehicle. To get this clause removed from your RC, you will need to submit the application for hypothecation removal at your respective RTO along with the NOC or NDC, your address proof and the updated insurance policy. After this, the RTO will verify all the information and then provide you the revised RC that will have your name as the Owner and an official stamp indicating the hypothecation has been removed.

Ensure the Car Loan Closure is Updated in Your Credit Report

As soon as you are done with all the formalities related to the Car Loan Closure, do not forget to request your lender to inform this closure to the credit bureaus. This will ensure that your credit report will get updated with the Car Loan closure that you have done. If it is not updated, you can get in touch with your respective lender and request it to do so.

Gold Loan Closure Formalities

Individuals opt for a gold loan so that they can fulfill their various financial needs. Gold loans are short-term loans (ranging from 3 to 12 months) and there are several ways to repay the same, such as EMI payment, Bullet Payment, Upfront Interest Amount payment, etc. But there are a few steps that you need to keep in mind while repaying the gold loan amount in full. All of them are mentioned below. Check them out!

1. As you know that a gold loan is taken against the gold ornaments and when you repay the loan in full, you will get your ornaments back.
2. After paying the full amount, the first thing that you need to submit is the Loan Receipt (given at the time of taking the loan) to your lender to close the loan account. This receipt will have all the necessary information such as the details of your gold ornaments, its weight, its value, loan amount, etc.
3. The lender will check if you have any outstanding amount to pay after which you will get the No Due Certificate from the lender.
4. After getting the NDC, the appraisal of your ornaments will be done to ensure your gold weight is the same as when you pledged it to the lender.
5. You will also need to ask for the Ornaments Receipts that you have submitted at the time of the Gold Loan application.