Question
Q: Are there pre-payment penalties for personal loans?
Answer
A:
Yes, many lenders charge pre-payment or foreclosure penalties if you repay your personal loan before the end of the loan tenure. However, the charges vary based on the lender, loan terms, and when you repay.
What Is a Pre-payment Penalty?
A pre-payment penalty is a fee charged by the lender if you repay part (partial pre-payment) or the entire loan (foreclosure) before the agreed time. Lenders impose it to compensate for the interest they lose.
Common Pre-payment Rules in India (2025):
| Lender Type | Pre-payment Allowed? | Charges |
|---|---|---|
| Banks | After 6–12 EMIs | 2%–5% of outstanding principal |
| NBFCs | After 3–6 EMIs | 2%–4% usually |
| Digital Lenders | Varies | Often higher (3%–6%) |
| Zero Penalty Loans | Some special offers | Usually offered for salaried borrowers |
RBI Guidelines (for Reference):
While the RBI mandates no foreclosure charges on floating-rate home loans, personal loans are usually fixed-rate, so lenders can legally charge pre-payment penalties.
Things to Check in Your Loan Agreement:
-
Is there a lock-in period before pre-payment is allowed?
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What is the percentage of penalty?
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Is partial pre-payment treated differently than full foreclosure?
How to Save Money:
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Negotiate the penalty at the time of loan agreement.
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Compare different lenders – some offer zero pre-payment penalty.
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Pre-pay early in the loan tenure (saves more interest).
Need Help with Loan Terms or Hidden Charges?
Call: +91 9625961599
Visit: www.legals365.com
Advocate B.K. Singh and his team offer expert legal review of loan agreements and help you avoid costly traps.
By Advocate BK Singh
(Delhi High Court)