A personal loan can be used as an immediate help for an urgent need. As it does not come attached with an end-use criterion like a home loan or vehicle loan, a personal loan can be put to use for a multitude of reasons like renovating your home, funding a wedding, taking a holiday abroad, buying high-end gadgets, down payment for a home loan, the list is just endless.

The current rate of interest for personal loans can range anywhere between 11.25% to 35.1%. The rates for a personal loan are generally decided by your lender based on your credit score, income level, and the other liabilities being serviced by you.

You might have noticed that personal loan generally comes with a high rate of interest as it is an unsecured loan.

Experts suggest that when you are looking to ease your financial burden, you should pay off the loan with highest rate of interest first. If you have personal loans and other kind of debt like home loan, vehicle loan, etc., your top priority should be to close the personal loan, else it can increase your debt burden.

Methods of Closing a Personal Loan

  • You can either regularly repay the loan till the completion of the entire tenure or pre-close the loan to reduce your debt burden immensely

  • Prepay the loan

  • Part prepay the loan

Closing a personal loan does not just stop with paying off the amount you borrowed, you need to follow certain procedures for a proper closure. Read on to know more about procedures followed in closing a personal loan.

Procedure for the Regular Closure of Your Personal Loan

When an individual closes the loan after completing the entire tenure, it is called regular closure. After fully repaying your loan, you need to follow few procedures to close the loan.

  • After you have paid all your loan EMIs, it is good to contact the bank and check if all the outstanding is cleared. For Ex: You might have some penalty on late payment, or some other outstanding charges on your loan if you had missed some EMIs or paid in late. It is good to check with the bank once and confirm that there are no charges outstanding and your loan account is good to be closed.

  • If everything is clear, you may fix a date when you would want to go and do the other formalities for closure. Usually, if everything is in order, the bank would be sending you the closure certificate, either by post or email.

  • While going to the bank, you need to carry your ID proof, loan account number, and a cheque if there is any amount to be paid. The bank official will verify your documents and loan account before proceeding for the closure.

  • After completing the process, your account will automatically be closed. You need to get ‘Non-Objection Certificate’ (NOC) from the bank which is the proof of closing the loan. The certificate states that the borrower has repaid the entire loan and there is no outstanding balance pending.

  • You can also call the customer care and seek support in closing your personal loan.

Procedure for the Pre-closure of Your Personal Loan

Repaying your entire loan before the tenure ends is called pre-closure or prepayment. Some lenders levy a penalty for pre-closing the loan. However, pre-closure will help you lower your interest rate and debt burden. Following are the procedures involved in pre-closing your personal loan.

Before going in for pre-closure, check for the penalty clause and do a calculation of the benefit that you can incur by going in for pre-closure. The general rule is that if you decide earlier during the tenure of the loan for pre-closure, the more beneficial is it. But it is also the period when pre-closure penalties are the highest.  Different banks have their own rules for allowing pre-closure and penalties. Do not make a hasty decision here.

  • You need to visit your bank from where you have taken the personal loan.

  • You must carry the necessary documents such as ID proof, bank statements mentioning the clearance of your last EMI, loan account number and a cheque or DD for prepaying your entire loan.

  • The lenders usually charge a penalty of certain percentage from your loan amount which must be paid along with the prepayment.

  • After paying your prepayment through cheque, cash or DD, the bank will give an acknowledgment letter which has to be kept safely for future references.

  • After completing all the steps, the bank will send you the loan agreement, few days after the closure of the loan.

Part Prepayment of the Loan

There are instances when you might be eligible for a bonus or a windfall gain from some other source which you would like to put to use by paying off your loan. However, the amount may not be sufficient to pay off the entire loan. That is when you can opt for part-prepayment of the loan.

There will be some penalties involved in part pre-payment of the loan too. Be watchful of those. Lenders may also restrict frequent part-prepayments and may allow only a limited number of them. Each of these conditions vary between lenders, so it is good to check with them prior to making a prepayment

Also, this would also not result in closure of your personal loan account. You might have a few more EMIs left out after part-prepaying the loan which would need to be paid promptly.

Additional Reading: How Pre-closure of Personal Loan Can Impact Your Credit Score?


Closure of personal loans is a relatively simple process as you do not have any assets pledged with the bank which need to be released.

Closing your personal loan is an important duty which should not be neglected at any cost. Be aware of the procedures involved in properly closing your loan to avoid any problems related to your credit.