diff --git a/erpnext/loan_management/doctype/loan/loan.py b/erpnext/loan_management/doctype/loan/loan.py
index 0c9c97f60fd..4a333df5a59 100644
--- a/erpnext/loan_management/doctype/loan/loan.py
+++ b/erpnext/loan_management/doctype/loan/loan.py
@@ -411,11 +411,6 @@ def close_unsecured_term_loan(loan):
 		frappe.throw(_("Cannot close this loan until full repayment"))
 
 
-def close_loan(loan, total_amount_paid):
-	frappe.db.set_value("Loan", loan, "total_amount_paid", total_amount_paid)
-	frappe.db.set_value("Loan", loan, "status", "Closed")
-
-
 @frappe.whitelist()
 def make_loan_disbursement(loan, company, applicant_type, applicant, pending_amount=0, as_dict=0):
 	disbursement_entry = frappe.new_doc("Loan Disbursement")
diff --git a/erpnext/loan_management/doctype/loan_write_off/loan_write_off.py b/erpnext/loan_management/doctype/loan_write_off/loan_write_off.py
index 25aecf673bb..e920f08c70f 100644
--- a/erpnext/loan_management/doctype/loan_write_off/loan_write_off.py
+++ b/erpnext/loan_management/doctype/loan_write_off/loan_write_off.py
@@ -9,6 +9,9 @@ from frappe.utils import cint, flt, getdate
 import erpnext
 from erpnext.accounts.general_ledger import make_gl_entries
 from erpnext.controllers.accounts_controller import AccountsController
+from erpnext.loan_management.doctype.loan_repayment.loan_repayment import (
+	get_pending_principal_amount,
+)
 
 
 class LoanWriteOff(AccountsController):
@@ -39,11 +42,13 @@ class LoanWriteOff(AccountsController):
 	def on_submit(self):
 		self.update_outstanding_amount()
 		self.make_gl_entries()
+		self.close_employee_loan()
 
 	def on_cancel(self):
 		self.update_outstanding_amount(cancel=1)
 		self.ignore_linked_doctypes = ["GL Entry", "Payment Ledger Entry"]
 		self.make_gl_entries(cancel=1)
+		self.close_employee_loan(cancel=1)
 
 	def update_outstanding_amount(self, cancel=0):
 		written_off_amount = frappe.db.get_value("Loan", self.loan, "written_off_amount")
@@ -94,3 +99,39 @@ class LoanWriteOff(AccountsController):
 		)
 
 		make_gl_entries(gl_entries, cancel=cancel, merge_entries=False)
+
+	def close_employee_loan(self, cancel=0):
+		if not frappe.db.has_column("Loan", "repay_from_salary"):
+			return
+
+		loan = frappe.get_value(
+			"Loan",
+			self.loan,
+			[
+				"total_payment",
+				"total_principal_paid",
+				"loan_amount",
+				"total_interest_payable",
+				"written_off_amount",
+				"disbursed_amount",
+				"status",
+				"is_secured_loan",
+				"repay_from_salary",
+				"name",
+			],
+			as_dict=1,
+		)
+
+		if loan.is_secured_loan or not loan.repay_from_salary:
+			return
+
+		if not cancel:
+			pending_principal_amount = get_pending_principal_amount(loan)
+
+			precision = cint(frappe.db.get_default("currency_precision")) or 2
+
+			if flt(pending_principal_amount, precision) <= 0:
+				frappe.db.set_value("Loan", loan.name, "status", "Closed")
+				frappe.msgprint(_("Loan {0} closed").format(loan.name))
+		else:
+			frappe.db.set_value("Loan", loan.loan, "status", "Disbursed")