Procedure, charges & documentation for Car Loan Closure

Car Loan closure refers to the process of repaying the outstanding amount before the loan term ends. It offers you an opportunity to become financially debt-free sooner than expected.

The decision to close your Car Loan early is a big step towards financial freedom and stability. However, it is essential to calculate the Car Loan closure charges and penalties associated with foreclosure. Now, you might wonder how to close a Car Loan early.

How to close a Car Loan?

You have two options for initiating Car Loan closure:

Online closure: Many lenders provide online platforms where you can initiate the closure process conveniently through their websites or mobile apps.
In-person closure: Alternatively, you can visit the lending nearby branch in person to submit a written application for foreclosure.

How to calculate closure amount?

To calculate the closure amount for your Car Loan, follow these steps:

Determine the amount you wish to repay ahead of time.
Decide on the loan tenure that suits your financial situation.
Use an online EMI calculator, considering the applicable interest rate to determine the monthly instalments (EMIs).
Identify the month until which you intend to clear EMIs.
Choose the foreclosure month that aligns with your repayment goals.
Calculate the Car Loan closure charges incurred during foreclosure based on a percentage of the outstanding balance.

Steps for foreclosure

Here are the essential steps to initiate the closure of your Car Loan:

Request a closure statement: Contact the lender to obtain a closure statement detailing the outstanding balance, including any applicable fees or penalties.
Payment arrangement: Settle the outstanding amount either through a lump-sum payment or inquire about any available instalment options.
Document submission: Submit any required documents, such as identification proof, a loan agreement, and a copy of the closure statement, as per the lender's instructions.
Confirmation of closure: Await confirmation from the lender that the Car Loan has been successfully closed.
Release of lien: After closure, the lender releases the lien on the vehicle, indicating that you now have clear ownership.
Retrieve documents: Collect relevant documents from the lender, such as the paid-off loan agreement stating that your Car Loan has been closed or no objection certificate and a lien release certificate

Documentation required for foreclosure

When initiating a Car Loan foreclosure, you will need to provide the following documents:

Written application: Submit a written application to the lender requesting foreclosure of your Car Loan.
Personal identification proof: Include copies of your PAN card, Aadhaar card, driving licence, or passport.
Loan documents: Gather all relevant loan documents provided by the lender.
Loan account details: Provide details regarding your Car Loan account.
Bank statements: Submit recent bank statements as proof of the last EMI payment and clearance.

Calculating pre-closure penalty charges

When opting for prepayment of your Car Loan, it is essential to understand the associated penalty charges levied by lenders. These charges compensate for lost interest due to early repayment. The penalty may vary among different financial retailers; therefore, it is crucial to calculate this charge before making a decision.

Axis Bank offers Car Loans ranging from ₹1 lakh to 100% on-road financing, with a payment tenure of up to 7 years and easy foreclosure option. Additionally, the option for early closure of your Car Loan comes with a foreclosure fee of 5% of the outstanding balance.

Pre-closure procedure for Car Loans

Following the Car Loan closure procedure, you can successfully close your Car Loan ahead of your loan tenure and save on interest payments.

Review the loan agreement for pre-closure terms.
Contact the lender for the outstanding amount and charges.
Calculate the total repayment, including principal and charges.
Arrange funds for payment.
Request a No Objection Certificate (NOC) post-payment.
Collect all loan-related documents.
Confirm the credit report update with the lender.
Retrieve post-dated cheques, if applicable.
Verify the official closure of the loan account.
Ensure the transfer of car ownership documents back to you.

Important points to consider before pre-closing your Car Loan

Before deciding whether to pre-close your Car Loan, consider the following points:

Foreclosure offers long-term benefits by reducing interest payments on high-interest Car Loans.
Although pre-closure affects your credit score, it demonstrates a strong repayment history to lenders.
Calculate foreclosure charges to evaluate the feasibility of closure while factoring in penalties imposed by lenders.
After closure, redirect EMI funds towards other investments or loans that align with your financial goals.
Only opt for foreclosure if you have surplus funds; otherwise, consider making regular pre-payments according to your budget.

Also Read: Personal Loan vs Car Loan: What is the difference?

Wrapping up

Closing a Car Loan early through foreclosure or prepayment provides an opportunity to become financially debt-free sooner than anticipated. By understanding the Car Loan closure procedure and calculating closure charges accurately, you can make an informed decision that aligns with your financial goals.

FAQs

Is it good to foreclose a Car Loan?

Yes, foreclosing a Car Loan can help you save on significant future EMIs and reduce the interest burden. However, it is essential to consider the foreclosure charges before making a decision.

How do I close a Car Loan?

To close a Car Loan, you can either opt for foreclosure by paying the entire outstanding amount or make prepayments to reduce the principal balance gradually.

After how long can I pre-close the Car Loan?

Most lenders allow pre-closure after the borrower has paid 12 EMIs. However, terms and conditions may vary among different financial institutions.

Are there any foreclosure charges?

Foreclosure charges depend on the lender's policies. Some lenders impose penalty fees as compensation for lost interest when initiating foreclosure.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.