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How to achieve 'closure' of your loan, savings a/cs

While closing your loan, ensure that all documentation is in place and check if the credit report is updated to reflect the same

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How to achieve 'closure' of your loan, savings a/cs
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Achieving closure in financial products is important to ensure your financial health. When you pay off your home, car or credit loan or when you close your bank account, ensure you complete the whole documentation process and that your credit report reflects the same. Let us see how to do it.

Savings bank accounts

Every time you change jobs, you are required to open new savings bank account for your salary. At the same time make sure you close your previous bank account. The salary account does not automatically close when the salary is no longer remitted to it. Instead, it turns into a regular savings account. This means you will have to maintain a minimum balance in the account. If you don't the bank will start deducting charges for non-maintenance of minimum balance.

"Charges could be as high as Rs 600 per month,'' says Naveen Kukreja, CEO and co-founder, Paisabazaar.com.

Besides, if you do maintain a minimum balance, you would be earning very little interest and paying exorbitant charges for services like debit cards and SMS alerts that you no longer use, said Navin Chandani, chief business development officer, BankBazaar.

The bank could ask you to surrender your debit card and unused cheque leaves, if any, along with a duly signed letter or an application for closure of the account.

Your account will be classified as 'inactive' if you do not make any transaction for more than 12 months and beyond that as 'dormant account'. Reviving or activating a dormant bank account can time-consuming.

"In case your account is a dormant one, then you will have to activate it first before you submit the closure form,'' Chandani says.

Home loan account

To close a home loan account, first intimate the lender in writing. Specify the time by which you wish to close the loan and request for a statement of accounts with the exact outstanding amount, including the interest. Once the lender reverts with the details, you can pay the remaining amount and close your loan.

When you close your home loan account make sure you obtain No Objection/No Dues Certificate (NOC/NDC) from your lender. Also, recover all original documents such as bank account statements, income proof, deed of sale, possession letter, etc, which were submitted during the loan application.

Lenders sometimes put a lien against your property when they are unsure regarding your repayment capability. Make sure you get the lien terminated from the registrar while closing the home loan account. The registrar may require your NOC while approving your request to terminate the lien and discharge the release deed. Secondly, since the loan has been closed, it should state that all dues are paid by the borrower and the lender does not have any rights or claims on the property. Make sure this paper is duly signed and has the lender's stamp.

"It would also be prudent to obtain the loan track record from the beginning to the end of the loan period, along with the bank account statement and loan closure statement from the lender,'' says Kukreja.

Remember to obtain the No Encumbrance certificate from the lender, which certifies that you are free from any legal/monetary liabilities and removes the scope of any hindrance from the lender in case the borrower wishes to sell the property post loan account closure.

Make sure that you receive all the documents submitted at the time of taking the loan. "Preferably collect your documents in person instead of having them sent to you and check them at the lender itself that nothing is missing. Before you sign the acknowledgement stating that you received the documents, check that all pages of all documents are intact,'' Chandani says.

In case property documents are misplaced by the lender, do not accept the rest of the documents or sign an acknowledgement. You will have to register a written complaint with the bank, and file a police complaint regarding the loss of original documents. You will also have to apply to the sub-registrar's office where the original document was registered and pay the stipulated fee to obtain the true copy of the registered document.

Auto loan

In case of a car or two-wheeler loan, once the full repayment is complete, the bank sends an NOC to the borrower and a letter to the Regional Transport Office (RTO) and insurance company stating that the loan has been fully paid off. The borrower needs to submit the NOC to the concerned company and submit the copy of the insurance papers along with NOC to the RTO. The RTO will then give you an acknowledgment receipt, which can be used as the RC book until you receive the RC with your name listed as the owner and a stamp indicating that the hypothecation and endorsement have been removed. However, in case of auto loans lenders may have a lock-in period where they do not allow you to close or balance transfer the loans. So, you may be charged a penalty if closing the loan earlier, Chandani says.

Credit card loan

Credit card issuers usually levy foreclosure charges of up to 3% of the outstanding principal amount, on full prepayment of loan against credit card. Partial prepayment is usually not allowed by most credit card issuers. Loan against credit card is considered 'closed' when you have made regular payments and there are no outstanding amounts against your name, that is, you have paid in full.

Update credit report

In case of all loans, once you close them, request the lender to update your credit records with the credit bureaus. Check your credit report after the stipulated time, usually 30 days, to make sure the changes reflect. If not, write to the credit bureau directly with a copy of your NOC and request them to update their records. Check again after 30 days to ensure that the records are updated.

SECURE AND SHUT

  • Close savings bank account to avoid paying fee on non-maintenance of balance 
     
  • While closing home loan obtain NOC and all original documents, deed of sale, possession letter, etc  from your lender. If documents are misplaced don’t accept acknowledgement
     
  • Once you close your loan request the lender to update your credit records with the credit bureaus 
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