Personal Loan: Loan approved, but intention changed! Can personal loan be cancelled now?

A personal loan is a great option to meet sudden financial needs. It is easily available based on your credit score and income without pledging anything. But, many times it happens that after the loan is approved, we no longer need it, or perhaps the money is arranged from somewhere else. In such a situation, the question arises whether this loan can be cancelled even after the money is credited to the bank account. The answer is 'yes', but there are some terms and conditions for this.

1. The loan is approved, but the money has not come into the account (before disbursement)

This is the easiest and most appropriate time to cancel the loan. If the bank has approved your loan, but has not yet transferred the amount to your account, then you can get it cancelled without any major hassle.

What to do

You should immediately contact your bank or financial institution through email or phone. It would be better if you went to the branch and applied in writing. Inform the bank that you do not wish to take the loan. They may ask you to fill out a cancellation form. In this case, there is usually no cancellation charge. However, the processing fee that you paid at the time of application may be non-refundable.

2. Money disbursed (after disbursement) – cooling-off period

If the loan amount has been disbursed to your account, you still have an option. Under Reserve Bank of India (RBI) regulations, many banks offer customers a “cooling-off period” or “free-look period”.

What is the cooling-off period?
This is the period after the loan is disbursed (usually 3 to 7 days) within which you can cancel the loan without any pre-payment penalty. In this, you have to immediately contact the bank and ask about the process of returning the loan amount. You have to return the entire principal amount to the bank. The bank can charge you proportional interest for the days of this cooling-off period, but no pre-payment or foreclosure penalty will be imposed.

3. After the cooling-off period is over, Pre-payment/Foreclosure
If the cooling-off period is also over, then you cannot "cancel" the loan. Now the only option left for you is to close the loan before the time, which is called pre-payment or foreclosure. In such a situation, you have to pay the entire remaining principal amount and the interest charged on it in one lump sum. Almost all banks levy charges on prepayment of personal loans, called prepayment penalty or foreclosure charge. This can range from 1% to 5% of the outstanding principal amount. Note that many banks also impose a “lock-in period” (usually 6 to 12 months of EMI payments) before which you cannot pre-close the loan.

FAQs
1: What is the cooling-off period?
This is a period of a few days after the loan amount is credited to the account, during which the customer can cancel the loan and return the principal amount without any prepayment penalty.

2: Will I get my processing fee back if I cancel the loan?

No, the processing fee is usually non-refundable once paid, even if you do not take the loan.

3: Will cancelling the loan affect my credit (CIBIL) score?

If you cancel or pre-close the loan by following the right procedure, there is no significant negative impact on your credit score. However, the loan enquiry remains visible in your report for some time.

4: What should I take from the bank after closing the loan?
After repaying the full loan amount, never forget to take a "No Dues Certificate" (NDC) from the bank. This is proof that you have repaid the loan in full.

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