Can a Lender Cancel Your Personal Loan After Closing?
Whether you’re consolidating debt, covering unexpected expenses or financing major purchases, a personal loan can provide the necessary funds for various financial needs.
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A question some borrowers may have is: Can the lender cancel a personal loan after the loan has closed? The short answer is yes, it’s possible a lender can cancel your loan. Understanding the circumstances that can cause loan cancellation can help you avoid it.
What it means to ‘close’ a loan
When you apply for a loan, the lender reviews your application, conducts a credit check and assesses your ability to repay the loan. If you meet the lender's requirements, you receive a loan offer with specific terms, including the loan amount, interest rate and repayment period.
Accepting the loan offer enters you into a legal agreement with the lender. Once the loan documents are signed, the loan is considered "closed," and the lender sends the funds to you.
Pre-closing loan cancellation
In certain cases, a lender may cancel a personal loan before closing. This could occur for various reasons, including:
Change in finances: If your financial situation changes significantly between the time of loan approval and closing — you become unemployed or take on new debt — the lender may cancel the loan because of concerns about your ability to repay.
Inaccurate information: If you provide false or misleading information on your application, the lender can cancel your loan.
Unverified information: Most lenders require you to provide documents to verify information such as employment and income. Failing to provide such documentation can result in a canceled loan.
Unfunded loan: Some lenders submit your loan application to investors who can choose to fund your loan. If a loan goes unfunded after a certain period, the loan may be canceled.
Loan cancellation after closing
Once a personal loan is closed, the borrower may assume the agreement is final and can’t be canceled. However, there are limited circumstances where a lender might cancel a personal loan after closing.
Fraud detection: If a lender discovers evidence of fraud related to the loan application or the borrower's financial information after the loan has closed, they may choose to cancel the loan.
Material misrepresentation: If it turns out that the borrower provided false information that significantly influenced the lender's decision to extend the loan, the lender may cancel the loan after closing.
Violation of loan terms: If the borrower breaches the terms of the loan agreement, such as consistently missing payments or defaulting on the loan, the lender may have the right to cancel the loan and demand repayment in full.
How to avoid loan cancellation
While it’s uncommon for lenders to cancel a personal loan after closing, there are instances where loan cancellation is possible. Here’s how to avoid any potential issues.
Know the lender’s eligibility requirements before you apply and consider if you meet all requirements. Most lenders provide this information on their websites.
Provide full and accurate information on the application. This will likely include personal information like your name, birthdate, address and Social Security number, as well as details about your income and employment.
Promptly respond to a lender’s request for documentation that matches and verifies information in your application.
Once you have the loan, adhere to the terms and conditions of the loan agreement. If you encounter issues with repayment or other terms of the loan, reach out to the lender.