A loan closure letter is a formal documentation sent to the loan borrower by the lender. It implies that the account is closed and the borrower owes no more debt.
India’s fintech companies are lending more business loans than they did years ago. About 47% of all the business loans that fintech companies gave out in 2023 were between 10,000 and 50,000 INR. 22% of the business loans were for more than 5,00,000 INR.
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Due to the large number, borrowers need to understand why and how to get the closing letter. It can help them keep their financial records correct and protect their credit scores.
When do you Need a Loan Closure Letter?
You may need a loan closure letter in the following cases:-
- End of Loan Term: The moment your loan term is over, and all outstanding payments have been settled.
- Loan Foreclosure: It is the process you use to pay off debt before it’s due.
- Debt Settlement: Once you agree on an amount to settle with the lending institution and make the last payment, you can ask for a loan settlement letter.
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Importance of a Loan Closure Letter
A loan closure letter serves to verify official loan repayment. Here are some reasons to stress how important it is:
- Proof of Loan Repayment: As legal proof that the business has paid back the loan in full, a loan closure letter is one. It shows that there are no more payments due. This protects the loan from future complaints or claims.
- Credit Record Impact: You need this paper to keep your credit records clean. Credit reports will show that the loan is “closed.” It could help the company’s credit score and ability to borrow money in the future.
- Release of Collateral: When someone takes out a secured loan, the lender needs to see a loan closure letter before returning any collateral they have, like property or equipment.
- Legal Compliance: It clarifies things legally and ends the matter, proving that the loan deal was met. It helps protect the company from any legal or financial problems.
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How to Request a Loan Closure Letter?
Writing a letter requesting a loan closure letter from a lending institution requires adherence to a particular loan closure letter format to ensure you incorporate all the necessary information. Here are the guidelines for writing a decent closing letter:
- Headers: Put your name, address, and phone number at the start of the letter.
- Date: Write the date on the letter.
- Lender’s Information: Include the lender’s name, location, and ways to reach them.
- Subject Line: Make it clear what the letter is for, like “Subject: Request for Loan Closure Letter.”
- Loan Details: Provide specifics about the loan, such as the loan account number, loan amount, and loan type.
- Request for Closure: Make it clear that you want a loan closure letter and have paid back the entire loan.
- Supporting Documents: List any supporting papers you’re sending along. Examples include documents like a loan settlement letter or proof of the last payment.
- Signature: Sign the letter and put your name at the end.
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Loan Closure Letter Format
Here’s a sample loan closure letter format:
[Your Name]
[Your Address]
[City, State, ZIP Code]
[Email Address]
[Phone Number]
[Date]
[Bank/Lender’s Name]
[Branch Address]
[City, State, ZIP Code]
Subject: Request for Loan Closure Letter
Dear Sir/Madam,
Requesting a loan closure letter for loan account number [Your Loan Account Number]. As of [Date of Final Payment], I have successfully made all the payments due on this loan.
Please find the loan settlement letter and proof of the final payment attached for your reference. Regarding closing my loan account, I kindly ask that you send me the loan closure letter as soon as possible.
Thank you for taking care of this right away.
Sincerely,
[Signature]
[Your Name]
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Detailed Steps for Closing a Loan
Closing loans correctly and getting a foreclosure letter can help you to keep up-to-date financial records. Here are all the steps you need to take to close a loan:
Step 1: Obtain a Final Settlement Statement
It is essential to get a final payment statement from your lender before asking for a loan closure letter. This paper lists all the fees, interest, or payments needed before the loan can be closed.
Step 2: Make the Final Payment
Pay the remaining amount as soon as you get the final payment statement. It could include the loan amount, interest, and any other fees. Keep the payment receipt because you need it when you request the loan closure letter.
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Step 3: Submit a Written Request
The next step is to make the last payment and send an official letter asking for the closure letter. As shown in the loan closure letter format, include all the essential information, including the final payment receipt and any other necessary paperwork.
Step 4: Follow Up
If you don’t get the loan closure letter by the due date, you should contact the lending organization again. If you keep in touch, the lender will process your request quickly, and it will also help solve any problems that might come up.
Step 5: Verify Loan Closure
When you receive the loan closure letter, ensure the lender has marked your account as closed in their records. Also, look at your credit record to ensure the loan closed correctly shows up there. To keep your credit score high, you must follow these steps without any mistakes.
Takeaway
A loan closure letter is an important document that marks the end of your loan payback journey. To get this letter without trouble, follow the right steps and include all the necessary information in your request letter. Remember that keeping correct financial records and checking the details of your loan closing can help you avoid problems in the future.
In order to receive a loan closure letter, you need to repay your loan on time. Many times, businesses may face problems while repaying their loans. When a business has money problems, finding the correct financial answers is essential. Indifi helps businesses in India get the capital they need by providing customized loan solutions. Indifi can help you deal with your money problems smartly and effectively. Contact Indifi today to find the best financing options for your business.
FAQs
- If my lender doesn’t give me a loan closure letter, what should I do?
You should ask your lender for a loan closure letter in writing if they don’t give it to you. If you still haven’t heard back, you could ask for help from the banking regulator or the consumer court.
- How long does it take to receive the loan closure letter?
After making the request, it usually takes between 7 and 15 business days to get a loan closure letter. However, this can differ based on the type of lending institution.
- Does getting a loan closure letter help to improve my credit score?
Yes, a loan closure letter can help ensure that your credit report shows your loan account is closed, which will improve your credit score.