In the fast-paced world of instant finance, a personal loan often emerges as the most accessible solution for urgent monetary needs. However, life is unpredictable, and circumstances can change rapidly after you've received the loan amount. Fortunately, Indian banks and NBFCs provide a safety net known as the cooling-off period, allowing borrowers to reconsider and cancel their personal loans.
What is the Cooling-Off Period for Personal Loans?
The cooling-off period, also referred to as the free look period, is a designated timeframe granted by lenders. This window allows you to thoroughly review the loan's terms and conditions and cancel the agreement if you have second thoughts. This period is a crucial customer protection measure in the financial industry.
The duration of this grace period is not uniform across all institutions. It typically ranges between 3 to 15 days, starting from the date the loan amount is disbursed into your account. The exact number of days will be explicitly mentioned in your loan agreement, making it essential to read the fine print carefully.
Why Would You Cancel a Personal Loan?
Several valid reasons might prompt a borrower to return a freshly disbursed personal loan. A common scenario is when the very purpose for taking the loan vanishes. For instance, a planned medical surgery might get postponed, or a family vacation could be cancelled.
Other reasons include receiving a more attractive loan offer from a different lender with lower interest rates or better terms. Sometimes, you might secure the required funds from alternative sources like a salary advance, an unexpected bonus, or a performance incentive from your employer.
A sudden deterioration in your financial health, such as a job loss, salary cut, or delayed payments, can also make loan repayment seem daunting. Finally, upon reflection, you might simply realize that you can manage your situation without the additional debt burden.
The Step-by-Step Loan Cancellation Process
If you decide that cancellation is the right choice, you must act swiftly and follow a clear process. Your first step should always be to check your loan agreement document. This will confirm the exact length of your cooling-off period and outline any specific cancellation procedures mandated by your bank.
Next, you must formally inform your bank or NBFC of your decision to cancel. This can be done by visiting your branch and submitting a written application, sending an email, using the official website's portal, or even calling customer care. Ensure your request includes all necessary details: your full name, loan account number, and a clear reason for cancellation.
Most critically, this request must be submitted within the cooling-off period. Always ask for and securely store an acknowledgement receipt or a service request number as proof of your application.
The third step is to return the entire loan amount to the bank. You can do this via an electronic fund transfer (NEFT/RTGS/IMPS), a cheque, or a cash deposit at the branch. Just like with the request, obtain a written acknowledgement confirming that the bank has received the funds.
Finally, wait for the official cancellation confirmation from the bank. The processing of your request and the refund might take a few working days. Once completed, the bank will send you a final confirmation stating that the loan account has been closed.
Charges and Credit Score Impact
One of the biggest advantages of cancelling during the cooling-off period is that most banks do not charge extra fees for the cancellation itself. However, it is crucial to note that the processing fee you paid during the application or disbursal stage is typically non-refundable.
Many borrowers worry about the effect of cancellation on their CIBIL or other credit scores. The impact is minimal if you act within the stipulated period. If you cancel the loan after disbursal but during the cooling-off period and return the money promptly, the bank will report the account's suppression to the credit information companies (CICs). There might be a minor, temporary dip in your score, but it will recover quickly if you have no other negative credit events.
In conclusion, while a personal loan is a convenient financial tool, the cooling-off period empowers you with the right to reconsider. If your situation has changed, do not hesitate to cancel the loan. Although you may lose the processing fee, it is a small price to pay compared to being stuck with a debt you no longer need or cannot afford.
