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It’s possible to cancel a personal loan after signing your loan agreement, but it depends on the lender’s terms and when you choose to cancel. Some lenders offer a “cooling-off” or grace period, giving you a little time to cancel the loan, while other lenders might be less flexible. The details of your loan agreement should outline your options for canceling your personal loan.
Review this guide to learn about personal loan cancellation and several strategies to accomplish it.
Key Points
• A personal loan can be canceled after signing it, but the ability to do so depends on the lender’s terms and whether a cooling-off or grace period is offered.
• Some lenders provide a three-day grace period, known as the “right of rescission,” allowing borrowers to cancel a loan without penalty, particularly when a primary home is used as collateral.
• If cancellation is not possible, early repayment or a loan modification might be viable alternatives. However, early repayment could involve fees.
• Borrowers should carefully review their loan agreement to understand potential fees, penalties, and the specific steps required to cancel the loan.
• Typically, canceling a personal loan does not significantly impact your credit score, but the initial hard inquiry made during the loan application process may slightly affect your score.
Factors to Consider Before Canceling a Personal Loan
Your ability to cancel a personal loan depends on the loan details and when you choose to cancel. Personal loans can often be canceled if they haven’t yet been approved and the agreement hasn’t been signed. However, once the agreement is signed, you’re in a binding contract.
Some lenders offer a three-day grace period, during which you can cancel the loan for any reason. If the money hasn’t yet been deposited in your account, you might still be able to back out, but you’ll need to give the lender written notice as soon as possible.
Here’s what you need to know before deciding to cancel a loan after signing an agreement.
Check for Additional Fees
If the cancellation period has passed, early repayment could be an option. Certain lenders may charge a prepayment penalty, while others don’t.
Even if there is a fee, paying off the loan early can sometimes be the right financial move. Simply compare the interest savings with the cost of the early payment fee to decide what’s best for you. A personal loan calculator can show you how much interest you can save by paying off your loan.
Adjust the Loan Terms
Consider a loan modification if you need to adjust the terms of your loan. It involves altering the existing loan agreement (with the lender’s approval). Borrowers often seek one if they’re facing financial difficulties and want to avoid defaulting on their loan.
What Happens if You Decline a Loan?
Even if you apply for a personal loan and are approved, you don’t have to accept the offer — you can decline it. However, before you do so, there are a few things to consider.
First, check if the loan you’re applying for has an application fee. Most lenders don’t charge one, but it’s important to verify. If there is a nonrefundable fee, make sure that this is the lender you want to proceed with before applying.
Also, remember that submitting a personal loan application usually triggers a hard inquiry on your credit report, which can lower your score by a few points. Unlike soft checks, hard checks accumulate and can further impact your score with each application. This can make it harder to get approved for new credit. Moreover, these inquiries stay on your FICO® report for two years.
Recommended: What Credit Score Do You Need for a Personal Loan?
How to Cancel a Personal Loan After Signing
If you’ve already signed your personal loan agreement and need to cancel, here’s how to get started.
Review Your Agreement
Take a close look at your loan agreement to find your lender’s personal loan cancellation policy.
Know the Rules
Remember, loan agreements, repayment rules, and laws can differ depending on the type of loan.
Check for a Grace Period
See if your lender offers a short window, also known as a grace period or right of rescission, to return the borrowed money. If the funds are already in your account, find out if you can return them. Keep in mind that you might have to pay interest and possible penalties for early repayment. Your loan agreement should have all these details.
Prepare for Repayment
If you can cancel, be ready to repay the full loan amount, which will likely include extra fees and might cost more than what you originally received.
Understanding the Three-Day Rule
The three-day cancellation rule, also known as the right of rescission, is a consumer protection law from the Truth in Lending Act. It gives you three business days, including Saturdays, to change your mind about a loan.
However, this rule applies only if you’ve used your primary home as collateral. It’s typically for mortgages or home equity loans, but it may apply if your home secures your personal loan.
Recommended: Guide to Personal Loans
Does Canceling a Personal Loan After Signing Affect Your Credit Score?
Canceling a loan typically doesn’t affect your credit score as long as you don’t make a habit of it. However, the timing of your cancellation matters. If you stop the process before a hard credit inquiry, your score likely will stay the same. This is because when you apply for a loan, your lender conducts a hard inquiry, which will show up on your credit report and can slightly lower your score.
If you cancel the loan after it’s been approved, the initial application may have already impacted your credit score, but canceling the loan at this point won’t further affect your credit score.
The Takeaway
You can cancel a personal loan after signing the agreement, as long as your lender allows you to do so. While some lenders offer a grace period, giving you the option to cancel for any reason without fees, others may not be as flexible. That’s why it’s important to check your loan agreement to understand your options.
Remember, before making any decisions, ensure you understand the process and any fees or costs involved. Familiarizing yourself with these details will help you make an informed decision about whether to cancel your personal loan and how to accomplish it.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Can a personal loan be canceled after approval?
Cancellation upon approval depends on the lender’s terms. Some lenders offer a grace period for cancellation, while others have stricter policies. Check with your lender to see what options are available.
Does canceling a loan affect your credit rating?
Canceling a loan affects your credit rating only if the lender has already conducted a hard credit inquiry. If you cancel a loan before the inquiry, there’s no impact. If you cancel after approval, however, the inquiry may slightly lower your score. In this case, loan cancellation won’t cause further damage.
Is there a grace period for canceling a loan?
Certain loans offer a three-day grace period in which you can cancel a loan for any reason without fees or interest (as long as you return the money). After this period, cancellation may not be possible. It’s contingent on the lender’s terms and timing.
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