While taking a loan, we do lot of evaluation like checking the offer in terms of interest rates, prepayment penalties, loan foreclosure, repayment options etc. However same is not true while we close or complete the loan repayments. It is a common misconception that once the loan is repaid or pre-closed, the borrower’s obligation is over. In fact, if the borrower does not have a No Dues Certificate (NDC) or No Objection Certificate (NOC) from the lender they cannot prove that they are free of obligation to any entity including other banks. Banks and NBFC’s issue a NDC or Closure Letter while closing loans stating that the loan stands closed.
Few of the banks also issue a separate Statement of Account (SoA) along with NDC/NOC. These need to be kept safe for years even after closing the loan because they are valid legal records that proves that the loan is closed, and the repayments are correct. If there are any errors in the credit score, those can be corrected by producing the SoA to the concerned bureau. The SoA issued by the bank is proof that the payments have been made on time.
NDC not received from lender:
Some lenders issue NDC on the spot if the pre-closure payment is made by cash. In case it is made through a cheque, or if the loan closes automatically when the tenure gets over, the bank sends this letter to the borrower’s address and borrower is supposed to collect the original documents from the bank, if any. If it is not received due to a change of address or for any other reason, one should check with the bank and collect it immediately.
In case the NDC for a closed loan is not collected from the bank, or is misplaced, you can also approach the bank for getting a duplicate copy. Banks will help you with this, but if the loan was closed long time back, it may take few weeks to get the copy. Sometimes, this may require rigorous follow-up for weeks.
Closed Loan information to other banks:
Usually, most banks ask for one to two year’s bank statements from the borrower for sanctioning a loan. If any equated monthly installment (EMI) payments are getting reflected in your bank statements, they would ask for a statement of that loan. The credit report of the borrower also reveals all loans held by him currently as well as in the past.
Overall, there are many benefits to retain NDC/NOC after the closure of the loan –
- It acts as the legal proof for the loan closure
- It can be produced in case of any possible disputes with the bank in future
- In case you encounter any errors in the credit report, it will help you to rectify the errors
- It will ensure a hassle-free process for any kind of loan you are planning to apply in the future
- For selling the vehicle, this needs to be handed over to the seller, if he/she is taking the loan route
- It is also required for filing any claim with the insurance company.
Few more things that need to be focused after Loan Closure:
Personal Loans, Durable Loans and Credit Cards – For all these loans, the process closes once you obtain the NDC from the lender and unused cheques if any. It is a good idea to check the credit score once your loan is closed, though it is not mandatory. Its recommended if you are planning to take another loan in next one or two years.
Vehicle Loan – Apart from your lender, you also need to approach the regional transport office (RTO) for closing a vehicle loan. Since the vehicle is in the bank’s name, the latter’s name was endorsed on the registration certificate (RC), and you will need to change this after closure of the vehicle loan. Also, you need to update the RC book at the RTO and your auto insurance details in your insurance company by removing the hypothecation.