Personal Loan Prepayment & Foreclosure Charges — 2026

Prepayment means paying off part of your loan early; foreclosure means closing it fully before the tenure ends. Both reduce the interest you pay, but lenders may charge a fee — typically 2–5% of the outstanding principal on fixed-rate personal loans.

Most lenders also set a lock-in period (often 6–12 EMIs) before you can prepay at all. Check your loan agreement and Key Fact Statement for exact terms.

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Typical Charge

2–5%

Of outstanding principal

Typical Lock-in

6–12 EMIs

Before foreclosure allowed

GST

18%

On the foreclosure charge

Best Time

Early

Interest is front-loaded

Typical Prepayment & Foreclosure Terms

Lender typeLock-inForeclosure chargePart-payment
Private banks6–12 EMIs2–5% of outstandingAllowed with limits/charges
Public sector banksOften none0–3% of outstandingUsually allowed
NBFCs6–12 EMIs2–5% of outstandingVaries
Fintech lendersVaries0–5% of outstandingOften allowed

Indicative ranges only. IDFC FIRST Bank, for example, waives foreclosure charges after 12 months. Always check your own loan agreement.

RBI Rules on Prepayment Charges

RBI's prepayment-charges directions (effective 1 January 2026) bar regulated lenders from levying prepayment or foreclosure charges on floating-rate loans taken by individuals for non-business purposes. Most personal loans are fixed-rate, so lenders can still charge for early closure — but the charge must be disclosed in the Key Fact Statement.

How to Foreclose a Personal Loan

  1. 1Check that you've completed the lock-in period.
  2. 2Request a foreclosure statement from the lender (app, website or branch).
  3. 3Pay the outstanding principal, accrued interest and foreclosure charge plus GST.
  4. 4Collect the No Objection Certificate (NOC) and loan closure letter.
  5. 5Check your credit report after 30–45 days to make sure the loan shows as closed.

Expert Tips

  1. 1Prepay early in the tenure — that's when most of your EMI goes towards interest.
  2. 2Compare the interest you'll save with the foreclosure charge plus GST before closing.
  3. 3Ask whether part-payments are allowed free up to a limit each year.
  4. 4Always collect the NOC and confirm closure on your credit report.

Frequently Asked Questions — Prepayment & Foreclosure Charges

What are foreclosure charges on a personal loan?

A fee for closing your loan before the end of its tenure, usually 2–5% of the outstanding principal plus 18% GST on fixed-rate personal loans.

Can I prepay my personal loan anytime?

Usually only after a lock-in period of 6–12 EMIs. Some lenders allow it anytime. Check your loan agreement.

Is it better to prepay or invest?

If your loan rate is higher than the post-tax return you can reliably earn, prepaying usually makes more sense — especially early in the tenure.

Does foreclosing a loan affect my CIBIL score?

Closing a loan properly doesn't hurt your score. Make sure the account shows as 'closed', not 'settled'.

Do I need an NOC after closing my personal loan?

Yes. The NOC proves you have no dues. Keep it safely and check that your credit report is updated.

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Figures last reviewed August 2026 and shown for information only. Interest rates, fees and eligibility are set by each lender and depend on your credit profile — confirm the final terms in the lender's Key Fact Statement before you sign. RateCut is a loan marketplace, not a lender.