Buying a home or car is a big financial commitment, and repaying the loan is a major achievement. But many people think their work is over once they make the final loan payment. In reality, there are several important steps you must take after closing your home or car loan to ensure your financial security and avoid future troubles. Ignoring these post-loan formalities can lead to unexpected legal or financial issues. Here’s everything you need to do once your home or car loan is fully repaid.
1. Collect Your Loan Closure Certificate
Once you make your last EMI payment, the first thing you should do is collect a loan closure or No Objection Certificate (NOC) from your bank or lender. This document confirms that you have successfully repaid your loan, and the lender has no claims on your asset.
- Why is it important? It serves as proof that your loan is fully paid, preventing any disputes later.
- How to get it? Contact your bank, submit any required documents, and request the NOC.
- Tip: Always collect both a hard copy and a digital copy for your records.
2. Obtain the Lien Removal Certificate
When you take a loan, the bank places a ‘lien’ on your asset, which means it has a legal right over it until the loan is fully repaid. After closing the loan, you must ensure that this lien is removed.
- For Home Loans: Visit the sub-registrar’s office and request the removal of the bank’s name from the property documents.
- For Car Loans: Visit your local RTO (Regional Transport Office) to remove the bank’s lien from your vehicle’s RC (Registration Certificate).
- Important Tip: Get a written confirmation from the authorities after the lien is removed.
3. Retrieve Original Property or Car Documents
When you take a loan, the lender keeps the original property documents (for home loans) or the original RC (for car loans) as collateral. After the loan closure, you must retrieve these documents from the bank.
- For Home Loans: Collect your sale deed, title deed, and any other property documents submitted at the time of the loan.
- For Car Loans: Collect your car’s original RC and Form 35 (used for removing hypothecation from your RC).
- Check for Errors: Carefully review the documents to ensure there are no missing pages or errors.
4. Update Your Credit Score
A closed loan can significantly improve your credit score, but only if it is properly updated in your credit report.
- Check Your CIBIL Report: After 30-45 days of loan closure, check your credit report to see if the status reflects “Closed” instead of “Active.”
- Report Errors Immediately: If your credit report still shows an unpaid loan, raise a dispute with the credit bureau and your lender.
- Why It Matters? A wrongly reported unpaid loan can impact your ability to take new loans in the future.
5. Request an Updated Encumbrance Certificate (For Home Loan Borrowers)
An Encumbrance Certificate (EC) is a crucial document that verifies a property is free from any financial liabilities.
- Where to get it? Visit your local sub-registrar’s office.
- Why is it important? It ensures that your property is legally clear and free from any lender’s claim.
- Pro Tip: Keep the updated EC safe, as you may need it for future property transactions.
6. Get Hypothecation Removed from Your Car’s RC (For Car Loan Borrowers)
If your car was purchased on loan, your vehicle’s Registration Certificate (RC) mentions the lender’s name under “Hypothecation.” After loan closure, you must remove this.
Steps to Remove Hypothecation from RC:
- Collect Form 35 and NOC from the lender.
- Visit the local RTO with the documents.
- Submit a request for hypothecation removal along with required fees.
- Receive an updated RC without the lender’s name.
- Why is this necessary? If hypothecation is not removed, you may face issues while selling the car in the future.
7. Obtain a Legal Clearance Certificate for Your Property (For Home Loan Borrowers)
This is an optional but highly recommended step. A legal clearance certificate proves that your property has no financial burdens.
- Where to get it? From a property lawyer or a local registrar office.
- Why is it important? It makes future property transactions smooth and hassle-free.
8. Secure and Store All Closure Documents Safely
After completing all formalities, store all the documents securely.
- Physical Copies: Keep them in a safe place like a locker.
- Digital Copies: Scan and store them on a secure cloud or hard drive.
- Tip: Share copies with a trusted family member for extra security.
9. Inform Your Insurance Provider
If you had taken a home or car insurance policy linked to your loan, update your insurance provider.
- For Home Loans: Remove the bank’s name as the mortgagee from your home insurance policy.
- For Car Loans: If your policy was linked to the bank, update ownership details.
- Why is this necessary? It ensures that you get full claim benefits in case of damage or theft.
10. Plan Your Next Financial Move
Now that your loan is closed, consider utilizing your EMI savings wisely.
- Invest Smartly: Consider fixed deposits, mutual funds, or real estate investments.
- Start an Emergency Fund: Save for unexpected expenses.
- Avoid Unnecessary Loans: Enjoy your financial freedom before taking another big loan.
Completing these steps will ensure a smooth transition after your loan closure, helping you avoid legal complications, financial losses, and unnecessary stress. Loan repayment is a major milestone—make sure you finish it properly by taking care of all the necessary formalities!
