You took a personal loan and paid all the EMIs on time. After paying the last EMI, you think your personal loan journey is over. That is only partially true because an important step remains, which is collecting the No Dues Certificate from the bank.
In the article, we will understand what is a No Dues Certificate, why it is important, and how to get it.
What is a No Dues Certificate?
A No Dues Certificate (NDC) is a letter issued by the bank that acknowledges the borrower has repaid the personal loan. The NDC acknowledges the repayment of the outstanding principal, interest, and any other charges (if applicable) associated with the personal loan.
The issuance of the No Dues Certificate is the formal closure of the personal loan. A personal loan is an unsecured loan and doesn’t involve any collateral. In the case of secured loans where collateral is involved, the bank may issue the NDC after removing the lien marked on the collateral.
In the case of a vehicle loan, home loan, etc., once the NDC is issued, the borrower can sell it if they wish to, and the bank will have no objection to it.
Contents of the No Dues Certificate
Most banks have their own specified format for issuing the No Dues Certificate. Usually, it contains the following details.
- Borrower’s name and address
- Loan details like loan account number, loan amount, last EMI payment date, etc.
- A declaration that the entire loan amount has been paid and that there are no dues pending
- The details of collateral, if any
How to get the No Dues Certificate?
Usually, once the last EMI payment is made, the bank will automatically close the loan account from their side and issue the No Dues Certificate. The bank may send a soft copy through email or a hard copy through courier, or both.
The bank sends the NDC physical copy to the borrower’s address registered in its records. However, at times, it may happen that you have not received the physical copy of the NDC. It may happen that there was no one at home to collect it, or your address has changed, but has not been updated in the bank’s records. You may approach the bank and check. If your address has changed, get it updated in the bank records.
If you have neither received the soft copy nor the hard copy of the NDC, you may make an application to the bank. Most banks have the facility to apply for the NDC through net banking. You can log in to your loan account, go to the loan services section, and submit an online application for the NDC.
The other option is to submit a physical application for the NDC at the branch. You can fill out the specified NDC application form and submit it with the required documents. The bank will process the request and issue the NDC.
Importance of No Dues Certificate
The No Dues Certificate is much more than just a letter. The following points signify the importance of the NDC:
Proof of loan repayment: The No Dues Certificate is a written communication from the bank stating that the borrower has repaid the entire personal loan. The NDC is a formal personal loan closure.
Impact on credit score: Once a personal loan is paid, the bank communicates the same to the Credit Information Companies (CICs). The credit bureau updates the personal loan status in the borrower’s credit report as closed. The timely EMI repayments and personal loan closure reflect good credit behaviour on the borrower’s part and help in improving the credit score.
Legal protection: The No Dues Certificate mentions there are no outstanding dues from the borrower. Thus, it gives the borrower legal protection from the bank in case any future dispute arises pertaining to the personal loan.
Helps in getting new loans in the future: In the earlier section, we discussed how the credit bureau updates the personal loan status as closed in the borrower’s credit report. The timely payment of all EMIs also helps in improving the credit score.
In the future, the borrower may want to apply for a new personal loan or any other loan, or a credit card. When the borrower makes the credit application, the bank checks the borrower’s credit score and report. If the borrower has paid all EMIs for earlier and existing loans on time, it displays good credit behaviour in the credit report, and also reflects as a good credit score. A good credit score and credit report will help the borrower get the loan/credit card applied for, provided other eligibility criteria are fulfilled.
Peace of mind: Finally, the No Dues Certificate clearly mentions that the borrower has paid the entire loan amount and no dues are pending. The feeling of clearing the loan gives the borrower much-needed peace of mind.
Do remember to collect the NDC after paying the loan
In this article, we have understood why a borrower must collect the No Dues Certificate after paying the last EMI. If you have recently closed a personal or any other loan, check whether you have received the No Dues Certificate from the bank/NBFC. If not, make sure you collect it. Also, if you have a personal or any other loan running, make sure you collect the No Dues Certificate after paying the last EMI. The No Dues Certificate will be a written record that you have cleared the loan, providing much-needed peace of mind.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.
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