Yes, you can prepay a personal loan, but lenders may charge a foreclosure fee for early repayment. Prepaying your loan helps save on interest and reduces debt burden, but understanding the terms is crucial.
At Today Finserv Consulting India, we guide borrowers on smart prepayment strategies. Here’s everything you need to know.
1. When Can You Prepay?
Personal Loan Prepayment Rules in India
- Partial Prepayment: Paying a lump sum to reduce principal (some lenders allow this).
- Full Foreclosure: Closing the loan before tenure ends.
2. Prepayment Charges
| Lender Type | Foreclosure Charges |
|---|---|
| Banks | 2-5% of outstanding amount |
| NBFCs | 0-5% (varies by lender) |
| After 12 EMIs | Often reduced/no charges |
3. How to Prepay?
- Check Loan Agreement for prepayment terms.
- Submit a Request (online/branch).
- Pay Outstanding + Charges (if applicable).
Benefits of Prepaying a Personal Loan
✔ Saves Interest Costs (Reduces loan tenure)
✔ Improves Credit Score (Shows disciplined repayment)
✔ Debt-Free Sooner (Financial flexibility)
FAQs on Personal Loan Prepayment
1. Is prepayment allowed on all personal loans?
✅ Most lenders allow it, but terms vary—check your agreement.
2. How much interest can I save by prepaying?
📉 Significant savings! Example: Prepaying a ₹5L loan after 1 year can save ₹50K+ in interest.
3. Do banks charge for partial prepayment?
🔄 Some do (1-3%), while others allow free partial payments.
4. Can I prepay a loan taken 3 months ago?
⏳ Yes, but charges may be higher (up to 5%) in the first 6-12 months.
5. Does prepayment affect credit score?
📊 Positively! It shows strong repayment capability.
When Should You Prepay?
- If you have surplus funds (Emergency savings first!)
- High-interest loans (Saving > investment returns)
- Before major financial commitments (Home loan, etc.)
