There is no dearth of borrowers seeking to meet financial needs or buy properties. Some people also take out loans to reduce debt, pay current expenses or invest in options that have potential to generate income in the future. There are myriad types of loans including home loans, vehicle loans, credit card loans, etc. Banks and financial institutions should not ignore the fact that any type of loan should be equivalent to a loan, despite the now reasonable interest rates. Someday paid.
It’s nice to be able to close your loan. Closing, especially closing your loan, means you are freeing yourself from unwanted debt. Also, you are freeing yourself from the hassle of paying interest along with the principal component, which makes you debt-free at the end. Being able to foreclose your loan increases your credit score and saves you from future inconveniences. However, the joy of being completely debt free should not overwhelm your tendency to miss out on essential details which may lead to undue legal issues in future.
Keep the following facts in mind while closing your loan to save yourself from sudden unforeseen troubles. This includes:
1. If you are foreclosing on your loan, you should notify your bank representative and check for any unpaid levies or penalties. Many banks charge between one and five per cent of the outstanding loan balance. Also, once you have paid it off, check whether you have submitted all the required documents to support your loan repayment and whether the bank has returned all documents to you in compliance with the loan agreement.
2. Many banks and financial institutions that are offering home and vehicle loans place a lien on the collateral to avoid losses from bad loans. Not many people know that a lien is the legal right of the banker (or any creditor) to sell the collateralized asset of the borrower in the event of non-payment of the loan amount. It would be wise for the borrower to visit the banker’s office and get the lien removed. Credit then issues a No Objection Certificate (NOC), which means that the debtor has paid all the dues and does not need to pay anything further. Also, the creditor no longer has any right over the property or collateral.
3. In case of home loans, borrowers are satisfied with getting back the documents of their respective properties. However, they should seek a detailed description of all the transactions related to the asset called non-encumbrance certificate to ensure zero liabilities on the part of borrowers and creditors in future.
4. Taking a loan affects your credit score. Repaying it on time or prepaying the loan amount reflects your credit score, thus, making you more eligible for another loan in future. The borrower should ask the bank to update the CIBIL score on the site. Though it takes time, borrowers should make efforts in this direction to avoid difficulties while borrowing in future.
Taking a loan means taking a loan and inviting the possibility of losing its assets (kept as collateral) to the creditor. Hence borrowers should ensure that all documents are in place and no part of the entire loan process should be left incomplete or at the mercy of the creditor. After the loan is repaid, borrowers should note that the creditors (banks or non-banking financial companies) have any right to the collateral deposited by the borrower.
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