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Is there a penalty for prepaying or foreclosing a loan in India?
Updated · CardKhoj Editorial Team
Short answer
For floating-rate loans taken by individuals for non-business purposes — such as most home loans — RBI rules ban prepayment and foreclosure penalties. Fixed-rate loans, including most personal and car loans, can carry a foreclosure charge of about 2–5% of the outstanding amount. Check your loan agreement or Key Fact Statement.
Quick guide
| Loan type | Usual prepayment charge |
|---|---|
| Floating-rate home loan (individual) | Nil — RBI prohibits it |
| Fixed-rate home loan | Up to about 2% (nil if prepaid from own funds at many lenders) |
| Personal loan | 2–5% after a lock-in of 6–12 EMIs |
| Car loan | Up to about 5%, lower after a few years |
| Gold loan | Usually nil or very low |
Is prepaying worth it?
Prepaying saves the most in the early years of a loan, when most of each EMI is interest. Compare the interest you will save with the foreclosure charge plus GST — and keep an emergency fund before using savings to prepay.
After you close a loan
Collect the No Objection Certificate, original property documents (for secured loans) and check that your credit report shows the account as closed.
This answer is general information, not personalised financial or tax advice. Rules, rates and limits change — confirm with your bank, the RBI or a qualified adviser before making decisions.