Can You Cancel a Personal Loan?

can you cancel a personal loan

So, you decided to get a personal loan to pay off debts or consolidate debts or maybe even to take a trip, but now you have changed your mind. You want to give it back, but can you cancel a personal loan? It all depends.

can you cancel a personal loan

A personal loan goes through several stages, so whether or not you can cancel the loan and what you have to do to cancel the loan depends on what stage of the process you are currently in.

(You can read how I got myself drowning in debt here and how I got out of it here and here.)

What You Need to Know About Your Loan

First off, you need to understand that a personal loan is a contract. You and the loan company or bank that is giving you the loan have entered into an agreement.

They agree to give you a specific amount of money, such as $10,000 and you have agreed to pay that money back in monthly installments for a specific number of months such as 60 months or five years plus the interest that the bank has added to your loan.

All the information and what you are agreeing to is in the loan contract.

Of course, there is a lot of fine print that you need to be aware of, but everything is in writing. 

There are very specific laws that require banks and loan companies to spell out in detail all the rules and regulations and agreements of your loan.

So, first off, you should read it from start to finish. I know, it is a lot of legal mumbo jumbo, but it is important.

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Can You Cancel a Personal Loan Application?

If you have filled out an application and it hasn’t been processed yet or approved yet and you have received no money, then you can cancel the loan application.

You will need to contact your online loan company or bank as soon as possible to let them know that you are withdrawing your loan application.

Don’t wait.

Do this immediately if you have changed your mind.

Once the loan has been approved, things can change and your options may be limited.

Can I Cancel After the Loan Has Been Approved?

This is a bit of a gray area.

Some lenders will allow you to cancel your loan agreement after your loan has been approved and before the money has been dispersed. 

That means they have approved the loan, but they haven’t moved the money into your bank account yet. 

There will be a very small window here, so once again you will need to move very quickly and contact your loan officer immediately, so they can stop payment on their end.

So, when it comes to can we cancel a personal loan before disbursement, it will depend on the loan company as not all loan companies will let you cancel your agreement at this stage.

How to Cancel Personal Loan After Disbursement

Once the money has been disbursed meaning the loan has been approved and the money is now in your account, you cannot cancel the personal loan.

You’ve decided you don’t want it, but it is too late. Your only option is to pay back the personal loan to the bank.

There is a problem with this.

When you receive a personal loan, there are fees that come with it. That means if you received a personal loan for $10,000 you may have only received $9,500 of it. 

The loan company would have kept the other $500 to cover any associated fees. That means you will have to come up with an additional $500 to pay off the loan.

You will also have to pay any interest due as well. It shouldn’t be a lot of interest if it has only been a few days since you got the loan, but there will be interest.

In this situation, you will have to come up with the additional money out of your own pocket.

Now, some loan companies do give you a two or three-day grace period where you can return the money and cancel the loan, but that’s not typical.

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Can You Pay Off a Personal Loan Early?

Yes, you can always pay off a personal loan early, but there can be additional fees associated with doing so.

When you received your loan, the bank calculated your loan and interest on how long your loan term would be as well as other factors.

That means they are expecting to receive a certain amount of interest over the term of the loan. This is how they make their money.

If you pay off the loan early, they will lose out on the interest they would have made if you took the full loan term to pay off the loan.

Because of this, some banks and loan companies will charge you a fee to pay off your loan early to make up for some of this loss.

can you cancel a personal loan

Will Canceling a Loan Hurt My Credit Score?

In general, no canceling your loan will not affect your credit score.

When you apply for a personal loan the bank will make what is called a hard inquiry with one of the credit bureaus. This hard inquiry will affect your credit score.

This is true with any type of loan.

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The inquiry will not make a major difference in your credit score, but it could go down a few points, and it will bounce back up in a few months.

If you cancel the loan, there is no reason for the bank to make another inquiry into your credit score, so it will have no effect whatsoever.

Keep in mind, however, if the reason you want to cancel your personal loan is due to the fact that you haven’t been making payments, then those past due payments will hurt your credit score.

The best way to determine can you cancel a personal loan is to read the fine print on your agreement or call your loan company.

Just be sure to do it straight away. Don’t wait until you have received the money because it will most likely be too late at that point.

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