What Happens After Your Debt Consolidation Loan Is Approved?

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What Happens After Your Debt Consolidation Loan Is Approved?

You can consolidate all your loans and turn them into one debt. It makes it much easier to repay. But you still need to be careful and take some actions. The first thing is that you should close your old debts and accounts and set up new loans.

Review the Key Fact Statement (KFS) 

You should always read key fact statements before signing your loan agreement. KFS is provided by your lender, and it has all the details related to your loan. The KFS is evaluated during the approval stage. According to the RBI, lenders are bound to provide this statement to you. The lender must provide the Key Fact Statement (KFS) and applicable loan documents in accordance with the relevant RBI rules and its agreed mode of communication.

You can check the following things in the KFS. 

• You can check the APR; it shows your overall cost for the loan and applicable charges.
• You can also check your EMI amount, due date, and repayment details in KFS.
• You can simply check charges on prepayment terms. 

During the mandatory cooling-off/look-up period (minimum 3 days for loans of 7+ days tenor), the borrower can exit the loan by paying principal and proportionate APR without any penalty.

Use the Loan to Clear Existing Debts

You apply for a debt consolidation loan to repay your existing multiple loans. So once your loan is disbursed, you should repay your loan and credit card dues. 

Your new loan can be used in two ways:

• Banks or NBFCs can pay directly to your current lender. You don't need to do anything; your disbursed amount will be directly transferred to your current lender. 
• Sometimes banks transfer this loan amount to your bank account, and you can use this to repay the current loan. 

You should ensure that all your debts are paid off. 

Get a No-Dues Certificate

When you clear all your debts, you receive a no-due certificate (NDC) or No- Objection Certificate (NOC). You can ask each lender. It shows that you have paid the loan amount to the banks. 

You may not always need a physical No-Due Certificate (NDC) when applying for new credit or consolidating loans. Lenders can use your credit report, self-declaration, and digital records to check your repayment status. However, the exact NDC requirement may vary by lender and loan type.

Then you should also check whether your account is closed properly. And keep this certificate as proof of your repayment. 

Cancel Old Auto-Debits

When you close your old loans, you should cancel the payment instructions linked to them. It can include:

• NACH mandates: This is a method in which you give permission to the bank to automatically debit or credit a fixed amount from your bank. 
• Standing instructions: This method also allows you to permit your bank to make regular and automatic payments. 
• UPI AutoPay: Various UPI apps like GPay and PhonePe allow you to set up Autopay. 

All the above methods are used to pay your EMI or any other regular payment. You just need to set a specific time, and each month your money will be paid. This way you can't miss the payments. So, once you close previous loans, close this auto-pay option too and set it for a new loan.

Check Your Credit Report 

The next important thing to check is your credit report. After closing your old debit, you should check the following things in your credit report. 

₹0

Credit card dues

Correctly updated

Active loan accounts

Only your current loans

If you see any error like outstanding balance or incorrect status, you can raise a dispute on the same site. 

What are important Tips After Debt Consolidation?

Once you get a debt consolidation loan and pay off previous loans, that doesn't mean your journey is finished. After debt consolidation, too, you need to take care of some things. 

• After debt consolidation, you should not go for a new credit card or loan. You have recently closed previous loans, and if you take new debt, it can increase the debt burden on you.
• Then you should pay new EMIs on time. If you miss or delay the payment, it can appear in your credit report.
• NOC/NDC are important documents. You should keep these documents safe for the future as proof of loan repayment.
• Then check your credit report, and if any errors appear, you can raise a dispute. 

 The bank can approve your loan application after reviewing your credit history and income details, but this doesn't simplify your whole debt. Now you have to focus on the aftermath. It is important to pay new EMIs on time. 

Conclusion

You can get loan approval after completing formalities. But this is not the last step. When the bank disburses your loan amount, you should directly use it for previous loan repayment. Then you have to ask for NOC/NDC documents because these are important documents. It is proof of your loan repayment. 

You should also check your credit report to ensure that there are no errors or not. Look at your outstanding balance, active loan account, and credit score. If you find any errors, you can raise a dispute. After doing all these things, focus on new debt and pay EMIs regularly. You can reduce replacement stress this way. 

Why Choose LoansJagat for Debt Consolidation?

LoansJagat is a digital lending platform that helps you compare and Apply for personal loans easily. It is especially useful for people who have multiple loans or credit card dues and want to combine them into one simple monthly EMI. With LoansJagat, you can check loan offers from multiple banks and financial partners through one online application. 

You can also compare different offers and choose one that suits your budget. Competitive interest rates can help reduce your overall debt burden. The process is simple and fast, with quick eligibility checks and faster loan disbursal to help you repay your existing debts. LoansJagat also provides clear loan terms, processing charges, and repayment details, so there are no hidden fees or surprises.

Frequently asked questions 

Does a debt consolidation loan automatically close my old loans?

Debt consolidation loans don't work like this. If your debt consolidation loan is approved, that doesn't mean previous loans are automatically closed. You are responsible for the previous loans. If you have a digital loan, it will be directly transferred to your account, and you need to pay off previous loans personally. Sometimes banks or NBFCs send disbursed money directly to your previous lender's account, but here you need to check and confirm. 

What should I do if an old loan still appears active after it has been paid off?

After approval of the debt consolidation loan and closing of previous loans, you should check the credit report. If you find an error, such as the previous loan appearing in the report. You can raise a dispute or directly call the lender. 

Should I keep the old credit cards after consolidating their outstanding balances?

Yes, you can keep the old credit card even after debt consolidation. It is beneficial because it shows longer credit history. But you should not use this card because if you do, your debt is likely to increase. 

What documents should I collect after my previous debts are closed?

The most important documents you should collect are a No-Dues Certificate (NDC) or a No-Objection Certificate (NOC). These documents are proof of your loan repayment. It shows you have paid all the loans successfully.

When will the repayment of my new consolidation loan begin?

This is not fixed. It totally depends on the disbursal date and your new lender's specific billing cycle. In normal cases, your first EMI is scheduled 30 days after the date your loan funds are disbursed. For this information, you can check your loan agreement.

Can I use the remaining amount from a debt consolidation loan for other expenses?

Your debt consolidation loan is a normal unsecured personal loan, so you can use the leftover amount for other reasons. But it is advisable that you take only the amount that you need for loan repayment. Because you have to pay the EMIs later. 

Will my credit score change immediately after my old debts are closed?

No, it doesn't work like this. In general cases, when you pay off previous debt, first your lender is informed, and these details are transferred to the credit bureaus. After you repay or close a loan, the lender updates the credit bureau. Your credit report and score usually update within about 2 weeks, though it can sometimes take a little longer.

What happens if I miss an EMI on the new debt consolidation loan?

You should not miss an EMI after closing your previous loans. Because it can negatively affect your credit history and credit score, you may have to pay interest on this. 

Can I take another loan after consolidating my existing debts?

Yes, it is possible. You can take a new loan, but the approval depends on various factors like your monthly income to ensure you can pay EMIs. Also, they check your credit score and recent hard inquiries. If you fit their criteria, then they can approve your loan. 

How can I make sure debt consolidation actually reduces my financial burden?

If you want a debt consolidation loan to reduce your financial burden, you should go for the loan which is offering lower interest rate. Then compare various lenders' fees and penalties. Also, you should not use a credit card or take a new loan; it can increase the burden of EMI.