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Personal Loan

How personal loan pre-closure affects your credit score

Key Takeaways

  • Personal loan cancellation can occur due to improved finances, better offers, or fulfilled borrowing purposes.
  • Cancelling a loan before the lender accesses your credit report does not impact your credit score.
  • Cancellation at the disbursal stage involves minimal impact, while post-disbursal requires action within the cooling-off period.
  • Know other impacts of loan disbursal on your credit score.
21 Apr 2025 by Team FinFIRST

Personal loans help with urgent funds for problems such as health, education, travel, and marriage. In fact, 67% of Indians have taken a personal loan at some point in their lives.

But as much as taking a loan impacts your credit score, so does cancelling one.

If you’re also contemplating taking one or wondering if you can do without it, it is important you know every aspect of personal loan cancellation before deciding.

Let’s discuss various reasons for cancelling a personal loan and the subsequent effects on your credit score.

Common reasons for personal loan cancellation
 

Personal loan cancellation results in the termination of the agreement between a lender and a borrower. Some of the common reasons for cancelling a personal loan are –

  1. Improvement in the financial situation
  2. Better loan offers from other lenders
  3. Purpose of borrowing fulfilled from other sources
  4. Terms are no longer acceptable

Impact of personal loan cancellation on credit score
 

Many borrowers often wonder, ‘Can we cancel a personal loan before its loan disbursement?' The answer is yes! However, the impact of personal loan cancellation on credit score depends on the stage of your application.

1. After application submission
 

You can choose to cancel the application before the lender accesses your credit report from CIBIL or other credit bureaus. This will ensure that there is no impact on your credit score. 

2. Before disbursal
 

You can also opt to cancel the loan at the disbursal stage. By now, the lender has already formally enquired into your credit report. So, there will be no further impact on your credit score.

3. After disbursal
 

If you wish to cancel the loan after disbursal, you must do so within the cooling-off period, which is specified in the loan agreement. Cancellation may not be possible after this period has expired.

Reapplying after a personal loan cancellation
 

It is common for borrowers to apply for an instantpersonal loan after opting for loan cancellation earlier. You can try reapplying for a personal loan after considering the following factors –

1. Credit score
 

To get the best deal on your loan, ensure that your credit score is above 750.

2. Time
 

Wait for a few months (or weeks) before reapplying. Otherwise, it may indicate financial indiscipline.

3. Lender
 

Choose the lender for your loan carefully. Every time a lender accesses your credit report, it may impact your credit score.

4. Amount
 

Choose a loan amount that covers all your needs. The EMI should be affordable and not affect your daily lifestyle.

5. Loan cancellation charges
 

Be aware of the cancellation charges if you need to cancel your loan after approval. These fees vary by lender and can significantly impact your finances. Read the terms carefully before proceeding.

Factors that affect your credit score
 

Various factors affect credit scores generated by different credit bureaus. Some of the crucial factors that you must monitor are –

1. Timely payments
 

You must pay all your EMIs and credit card bills on time for a good credit score.

2. Credit card debt
 

As a responsible borrower, maintain your credit card debt below 30% of the approved limit.

3. Outstanding loans
 

Try to foreclose outstanding loans whenever possible to have a good credit score.

4. Selective applications
 

Do not apply to multiple lenders simultaneously. If your profile quickly registers several formal enquiries from lenders, it indicates credit hungriness.

FIRSTmoney: A smart personal loan option for your financial needs
 

If you are considering reapplying for a personal loan, opt for FIRSTmoney from IDFC FIRST Bank for a hassle-free experience. Some of the key features that help this personal loan stand out include –

  1. Digital journey for a swift and easy application process
  2. Instant loans available of up to ₹10 lakhs
  3. Flexible repayment tenures ranging from 9 months to 60 months
  4. Pocket-friendly interest charges starting at 10.99% per annum
  5. Instant loan approval and disbursal of funds
  6. Zero foreclosure charges on early repayment of the loan

Conclusion
 

Loan cancellation after approval is not uncommon, but it requires attentive consideration and decision-making to ensure that none of your other financial instruments are impacted. It's also important to choose a reliable bank that not only offers the best benefits but also understands your problems when they arise.

So, if you are looking for a hassle-free personal loan experience, opt for an IDFC FIRST Bank Personal Loan (which also provides a seamless personal loan balance transfer option). With flexible EMIs and repayment periods as well as competitive personal loan interest rates, FIRSTmoney meets all your needs.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.