How To Close Car Loan? There are many banks in India that offer Car loans to purchase new Cars as well as old Cars. Any individual who cannot afford money to purchase their desired Car can apply for Car loans offered by various banks in India to purchase the same. Banks such as SBI, HDFC, Kotak Mahindra, etc., offer Car loans to any individual who has a steady and stable income.
Individuals who are applying for Car loan must compare the interest rates offered by banks and choose the right bank to apply for a Car loan. Once the Car loan is processed by the bank, the individual will have to repay the loan. The repayment of the Car loan is paid through EMI (Equated Monthly Instalments). And most individuals will often get confused that paying the last EMI means closing the Car loan which is not true. In order to completely close a Car loan, one must take get the No Dues Certificate (NDC)/ No Du Form from the Car loan lender. So to help you with that, here is a detailed article on how to close a Car loan. Read on to find more.
Car Loan Repayment Method
Car Loan EMIs: Applying for a Car loan is easy, but one must think about the Equated Monthly Installments since Car loans are repaid to the lenders in the form of EMIs. Thus it is important for one to plan the necessary EMI repayment schedule before applying for a Car loan.
Car Loan Pre-closure/Foreclosure Procedure
Any individual would like to close their Car Loan if they have a sudden inflow of cash in their hands. Individuals can either make a partial or full payment of Car loan before tenure ends. But for those individuals who wish to prepay the Car loan before the tenure ends will have to pay pre-closure charges indicated by bank officials.
The Car loan preclosure fee is a small percentage of the outstanding principal amount of the Car loan. The Car loan preclosure or foreclosure charges vary from bank to bank and thus it is important for individuals to check the preclosure clause of the particular bank before applying for the Car loan.
Pre-Closing a Car Loan
Any individual who wishes to pre-close their Car loan will have to keep a note on the following things:
- Pre-closing the Car loan before the tenure ends will affect the credit score of the individual indirectly.
- Any lender will not allow to pre-close a Car loan, but still, if the individual wants to close the Car loan, then he/she will have to pay the penalty fees.
- Pre-closure of a Car loan will help individuals to save amount on interest rates.
How To Close A Car Loan?
The steps to close a Car Loan is given below:
1st Step: Check If All Dues Are Paid
- Before closing the Car loan, check if you have paid all the EMIs as per the repayment schedule. For this, you will have to keep track of monthly EMI payment bills.
- Upon paying the last EMI, collect all the loan documents and visit your concerned bank or lender.
2nd Step: Visiting Bank/Lender
- Following the successful payment of the last EMI, one must visit the concerned bank where they have applied for a Car loan.
- After visiting the bank, the individual must submit a request for loan closure.
- Make sure the bank is issuing you loan closure documents such as “Bank Closure Letter, NDC and NOC” (No Dues Certificate & No Objection Certificate respectively).
- After receiving the bank forms, fill out a form and submit the same to Regional Transport Office (RTO).
3rd Step: Remove Hypothecation
- Hypothecation is the process of submitting an asset as collateral protection to the bank or lender.
- Thus when you were applying for a Car loan, your Car is hypothecated to the bank/lender. The details about the same will be indicated in your Car Registration Certificate (RC).
- This means that your lender or bank is the owner of the Car until and unless the Car loan is closed. So your bank name or lender name must be removed while closing the Car loan and that is where hypothecated removal comes into the picture.
- For this, you will have to get Form 35 which states that hypothecation has been canceled between the lender and borrower.
- Now you will have to submit the bank or lenders copies of the No Dues Certificate & No Objection Certificate to the RTO.
- And also the individual will have to submit copies of the bank/lender’s No Dues Certificate & No Objection Certificate to the insurance provider.
4th Step: Request & Receive New Car Documents
- Before going to RTO make sure that you are carrying the original bank NOC, RC Book, Form 35 signed by bank officials, Car insurance documents, PAN card, and ID card stating your address proof.
- After successful submission of documents to RTO, the officials of RTO will issue a new RC Card in the form of a booklet or smart card. The main purpose of this card is to update the older card.
- The new RC card will contain all the details such as the buyer’s name and an RTO stamp indicating cancellation of hypothecation and endorsement.
- Now the next step is to obtain the insurance policy updated in your name.
- Also make sure you are receiving Insurance documents, tax documents, and Emission Certificate from RTO without fail.
5th Step: Document Submission To Insurance Provider
After receiving the updated RC book, NOC documents, and other insurance files, ensure that you are submitting them to the insurance provider. So that the insurance provider will update their records as per the new RC book.
6th Step: Check Credit Report
The last and final step is to check the credit report. Usually, the bank officials inform CIBIL saying the loan is closed. However, if your credit is not updated in 60 days from closing the Car loan, you will have to check with the bank officials about the same.
FAQs on How To Close a Car Loan
The frequently asked questions on how to close a Car loan are given below:
Q. Is it good to foreclose a Car loan?
A. Paying EMI’s are off-putting and if you have surplus money then you can obviously go and foreclose a Car loan. However, foreclosing the Car loan will result in a negative credit score because whenever you pay your EMIs, the credit would be increasing.
Q. Is it good to close the Car loan early?
A. Before closing the Car loan early compare the penalty charges and interest charges. If you find the penalty charges are less than the interest charges then you can certainly close the Car loan. However, if the penalty charges are more than the interest charges, then it is a bad idea to close the loan early.
Q. How do I return a Car I can’t afford?
A. It is quite common we just desire to buy the expensive Cars which we cannot afford for. However, if you find that, you will no longer able to pay the EMIs, then you can ask the dealer to agree to Voluntary repossession. For this, you will have to tell the lender/bank that you won’t be able to make EMI payments and ask them to take the Car back through Voluntary repossession.
Now that you are provided with all the information about how to close a Car Loan and we hope this detailed article is helpful to you. If you have any queries ping us through the comment box below and we will get back to you as soon as possible.