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Personal Loan

Does cancelling a loan affect 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.

16 Sep 2025 by Team FinFIRST

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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.

How does taking a Personal Loan affect your credit score?

How to calculate CIBIL score and contributing factors of it

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 –

Improvement in the financial situation
Better loan offers from other lenders
Purpose of borrowing fulfilled from other sources
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 instant personal 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 –

Digital journey for a swift and easy application process
Instant loans available of up to ₹15 lakhs
Flexible repayment tenures ranging from 9 months to 60 months
Pocket-friendly interest charges starting at 10.99% per annum
Instant loan approval and disbursal of funds
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.

Frequently Asked Questions

Can I cancel my personal loan after approval?

Yes, you can request cancellation before disbursement. Speak to the bank through the app, helpline, or a branch and quote your application number. The lender checks whether funds are still pending and then stops the file. If money has already been released, cancellation is not available, so you would need to close the loan through foreclosure as per your agreement. Review timelines, any fees, and written confirmation before you proceed.

Will cancellation affect my credit score?

Cancelling before disbursement usually has limited impact. The initial enquiry created during your application can remain visible on your credit report for a period, yet the absence of an active loan means ongoing repayment data will not follow. If a loan was disbursed and then closed quickly, the account may appear with a short history. Checking your report helps confirm the status and lets you dispute any errors if needed.

Is there a fee for cancelling my personal loan?

Fees depend on product terms, booking date, and channel. Processing fees already paid are often non-refundable, while stamp duty, mandate charges, and similar items may also remain payable. If funds are disbursed, foreclosure charges defined in your agreement could apply. Review the MITC, schedule of charges, and your sanction letter, then ask for a written exact breakup. Clarify whether GST applies and whether any fee concessions are currently available.

Check details about the fees and charges for personal loan by IDFC FIRST Bank.

How do I cancel my personal loan before disbursement?

Raise a request through the app, helpline, or branch and provide your application number. Ask the lender to place the file on hold and initiate cancellation. Keep PAN and an Officially Valid Document handy for verification, then confirm your registered account details. Seek written confirmation that the loan is cancelled and check whether any fees stand payable. Save screenshots or emails for records, and monitor your account for any credits.

Can I reapply for a personal loan after cancelling?

You can apply again after cancellation, subject to fresh eligibility checks and a new bureau enquiry. Consider allowing time so your profile reflects any recent changes, such as updated income or lower debt. Keep documents ready, including PAN, an Officially Valid Document, payslips, and statements. If the earlier application showed mismatched details, correct them before reapplying. Review product terms, fees, and your preferred tenure to shape a clearly affordable request.

What’s the timeline for personal loan cancellation?

Pre-disbursement cancellation tends to be quicker since funds have not moved, and the bank can stop processing after checks. Post disbursement closure usually involves paying the outstanding with applicable charges, followed by statement generation and lien or mandate updates, which can take a few working days. Timelines also depend on holidays and system queues. Request written confirmation and track status in the app or through email for secure clarity.

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.idfcfirst.bank.in for latest updates.