The need to take out a loan arises when a person needs money to meet his various financial needs. For example, taking the opportunity to buy assets to increase future income, reduce expenses, or settle a liability.
However, a loan not only obliges the borrower to repay the amount but also to pay interest on the borrowed amount.
So, in case you have taken out a loan when you are facing a shortage of funds, it is better to repay it as soon as possible when you have sufficient funds, in order to reduce the burden of paying interest.
However, you should also be careful when entering your loan, in order to avoid future inconvenience and also maintain a healthy credit score.
“People undertake their share of due diligence when taking out a loan, but when it comes to closing, people feel so relieved that they often tend to miss details that can lead to future problems,” said Nitin Mathur, CEO of Tavaga Advisory Services. .
Mathur lists the following things you need to remember when taking out a loan:
- In the event of foreclosure, the borrower should notify the bank and ask if there are foreclosure penalties ranging from 1-5% of the outstanding amount and ensure that all of their original documents are in place.
- It is normal, in the case of home and auto loans, for the banker to put a lien on the collateral to avoid losses due to bad debts. The borrower must go to the office of the authorized body to have the lien removed and must also obtain a NOC (No Objection Certificate) showing that all dues are cleared and the lender has no claims on the property .
- In the case of a home loan, a detailed statement of all transactions related to the property called NEC (Non-Encumbrance Certificate) must be obtained to exclude any anomaly.
- The borrower should ensure that their CIBIL score is up to date, which normally takes time to process and neglect can make future borrowing difficult and costly.
“These few things should be kept in mind when taking out a loan. All documents and deeds should be in the borrower’s name and it should be ensured that the bank or NBFC has no claim on the collateral. These few steps can make the process of closing a loan hassle-free for both parties involved in the process,” Mathur said.
Alok Kumar, Founder and CEO of StockDaddy, lists the steps to follow when closing a loan:
- First, information on pre-closing fees, as several loan products on the market charge high amounts at closing.
- Second, always consult your financial advisor for the accounting of the source of funds used for the closing as this should be clear on your books prior to the closing.
- Then get a NOC from the lender, it ensures that you have duly paid all dues and the loan is duly closed without any dues or waits.
- The next important step is to get all the original documents you submitted when applying for the loan.
- Last but not least; ensure that your loan closure is duly reflected in your CIBIL score as often, for operational reasons, loan accounts are not closed in the CIBIL database.