Loan Closure Certificate: Importance of Securing a NOC After Loan Repayment

A loan closure certificate or a No Objection Certificate (NOC) is an essential document that you should acquire after successfully repaying the loan. Keep in mind that your borrowing journey does not end when you repay. There are some legal formalities that you need to complete after successful repayment too. 

One of these formalities is getting an NOC from your lender. Read on to learn more about the loan closure certificate and why you need to get the NOC after loan settlement. 

What is a No Objection Certificate (NOC)?

An NOC or No Dues Certificate is a legal document that states your loan has been fully repaid. Simply put, it signifies your loan’s formal closure, stating you have paid all your EMIs and other related charges. 

The lender issues the loan closure certificate at the end of the loan cycle. So, you can get this document from the financial institution only after you have repaid the loan in full. This document contains important information, including: 

• Your name
• Details of the loan
• Date of loan closure
• Information about collateral, if any
• Declaration of full repayment of the principal and interest amount 

Importance of Securing an NOC After Repayment

Here is why it is critical for you to get the NOC after loan settlement.

Serves as Proof of Loan Repayment

The most important benefit of an NOC is that it signifies the formal closure of the loan and therefore, serves as proof of successful repayment. 

Since it is legal proof of full payment of all outstanding loan dues, it eliminates the chances of confusion. Therefore, it ensures that the financial institution does not ask you to cover any pending dues later.

Also Read: Eligibility Criteria for Personal Loan

Helps Correct Mistakes to Boost Credit Score

When you repay a loan in full, your creditworthiness and your credit score increase. However, there may be times when your loan account shows as active even though you have repaid your loan. In such cases, you can raise a dispute with credit rating agencies like CIBIL. 

Getting the NOC after loan settlement from the financial institution shows that you have repaid the loan amount in full and you can use this document to expedite the process of updation. This will help you correct the mistake and see an increase in your credit score as soon as possible.

Safeguards from Legal Troubles

Since getting a loan comes with the responsibility of timely repayment, non-repayment can lead to severe consequences. These include late repayment penalties or legal notices and proceedings. 

Thankfully, an NOC proves that you have successfully repaid the loan and do not owe the lender anything. As a result, this document helps avoid any misunderstanding and legal troubles. 

Dissolves Lender’s Right on Collateral

In some cases, you may have chosen to provide collateral to get a loan from a lender. The collateral may include gold, your vehicle, your home or other valuable assets. The lender has the right to liquidate this collateral in case of non-repayment on your part.

However, when you repay the loan, the lender’s right to your asset dissolves and they have to return your asset. By getting an NOC, you can ensure that the lender does not bypass this and hold on to your collateral. 

As you can see, not getting your loan closure certificate or NOC after the completion of your loan repayment can have serious consequences. These include legal repercussions, lack of solid proof of loan repayment and confusion related to repayment. It also leads to a poor credit profile that, in turn, may affect your future plans. So, ensure that you get it at the right time. 

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FAQs on Importance of Securing an NOC After Loan Repayment

What is the purpose of NOC for a loan?

The No Objection Certificate is a legal document that states you have successfully repaid your loan to the lender. The main purpose of an NOC is to serve as proof of your repayment and help ensure clarity.

Is NOC required after loan closure?

Yes, getting the loan closure letter from the bank or other financial institution after repaying all the EMIs of your loan is crucial. It is an important legal document that serves as proof of repayment. 

What is the validity of NOC for a loan?

The NOC for loan closure is valid for 6 months, 1 year, 5 years or longer based on its purpose.