Checklists for Loan Closure in India

Closing a loan in India is not often an immediate process, loans do not close on their own even if they have been paid for completely and the loan tenure culminates. Borrowers need to ensure that their loans have been closed by the concerned loan officer so as to avoid future complications.

The documents required to close a loan in India can be quite numerous depending on the type of loan and the reason for closing the loan.

A borrower may want to close his/her loan account with a particular lending institution because:

• The Loan Tenure Has Ended: In this case, the borrower needs to take all relevant documents to the loan officer and ensure closure.
• The Borrower Wants To Prepay The Loan: Sometimes banks levy charges on prepaid loans. The borrower may want to prepay a loan so as to close loan account and shift it to another lending institution offering better loan terms.
• The Borrower Is No Longer Able To Service The Loan: In this case, this will be a bad loan. Bank may try to recover as much from the backup asset or through other possible means. A remark of the bad loan or settled loan account will be mentioned, and this will reflect on the credit report.
• In general while closing a loan account in India borrower must ensure
• Return of Original Documents: at the time of taking up loan, the borrower had to submit a set of documents in original; this could be property document or any other asset document. The borrower must keep with himself/herself a set of a copy of all these documents, and at the time of loan closure, the borrower will be given back these documents which the borrower must tally with his set of copies to ensure that all have been returned. Only upon being fully satisfied should he/she sign his/her consent to having properly received all the original documents.
• Loan Closing Certificate: when a loan is closed, the lending institution issues a loan closing certificate to the borrower, the borrower must ensure that

a.       His/her name and address have been correctly mentioned

b.      Loan closing date is correctly mentioned

c.       Loan details, loan account number have been correctly mentioned

d.      The certificate has been duly signed and stamped

• Lien from Backup Asset is removed: this is in the case of secured loans which need to be backed up by collateral. For example, in the case of home loans, the lending institution takes up a legal right over the property till the loan is successfully closed. The borrower must ensure that upon loan closure this lien from his/her asset is removed and obtain a certification from the same. For this, the borrower may need to visit the registrar’s office with all the necessary documents.
• Credit Score and Credit Report has been Updated: the lending institution sends loan account data to credit information agencies (CIAs) approved by the RBI. The CIAs then generate credit reports and scores of individuals and groups on the basis of this data. The borrower should ensure that the loan account closed status reflects in his/her credit report. In case of bad loans or settled loans the same will be negatively shown in the credit report, and for resuming the lost creditworthiness, individual must first make all efforts to close these bad loan/settled loan accounts suitably and remove the negative impression at earliest.
• Guarantor has been Informed: This is in case the loan has been backed up by a guarantor. The borrower before closing the loan must also inform the guarantor, and the guarantor should obtain a no objection certificate of loan closure stating no further liability of the guarantor, also the guarantor must also ensure that this information has been updated in his/her credit report as credit reports also reflect guaranteed loan accounts status.