Prepayment and foreclosure charges

Paying a loan off early saves interest. Whether the lender can charge you for doing so depends on the kind of rate and the purpose of the loan.

What the rules say

• Floating-rate, individual, not for business: no charge. “For all floating rate loans granted for purposes other than business to individuals, with or without co-obligant(s), a bank shall not levy pre-payment charges”.
• Part or full, any source of money, no lock-in. The rule applies “irrespective of the source of funds used for pre-payment of loans, either in part or in full, and without any minimum lock-in period.”
• Older loans are covered too. For “existing floating rate term loans sanctioned before December 31, 2025 for purposes other than business to individual borrowers”, a bank “shall not charge pre-payment charges.”
• Loans that switch between fixed and floating. Whether a charge applies “will depend on whether the loan is on floating rate at the time of pre-payment.”
• Undisclosed charges cannot be levied. “No pre-payment charges which have not been disclosed as specified herein shall be charged by the bank.”

The wording is from the Directions for commercial banks. NBFCs have equivalent provisions, with some differences for business loans depending on the size and type of the NBFC.

Fixed-rate loans

The ban does not cover fixed-rate loans. Car loans and many personal loans are fixed-rate, and a lender may charge for early closure according to its own approved policy, as long as the charge was disclosed to you. Check the Key Facts Statement and the sanction letter before you plan a prepayment.

What we could not confirm

We read the rules for commercial banks and NBFCs. We did not re-check the separate Directions for small finance banks, regional rural banks or co-operative banks, where thresholds for business loans can differ.