Personal Loan Prepayment Charges & Norms of Top Lenders

Personal Loan Prepayment Charges & Norms of Top Lenders

Last Updated : June 30, 2025, 5:36 p.m.

Nobody wants to be under a debt burden for long, and the same holds for personal loan borrowers. Since personal loan interest rates often fall in the double-digit range, with some going as high as 20%–25%, it makes sense to repay the loan early if possible. Even though the maximum repayment tenure is typically capped at 5 years, borrowing at a higher rate means shelling out more in interest over time. That’s why it’s wise to consider full or partial prepayment as your income grows. Doing so can significantly reduce your interest burden. However, you must also be aware of the Personal Loan Pre-Payment Charges and guidelines that lenders impose. Let’s explore them in detail here!

Understanding Prepayment Penalty on Personal Loans

When planning to prepay a personal loan, it’s important to check for any prepayment penalties. This fee is charged by some lenders to recover the interest income lost due to early repayment.

However, not all lenders impose this charge, and the penalty amount can vary widely. Always review your loan agreement or consult your lender to confirm if a prepayment penalty applies and how it may impact your savings.

Using tools like a Personal Loan Prepayment Charges Calculator can help estimate the cost-benefit of early repayment. Also, be aware of RBI guidelines on prepayment and foreclosure charges, which set limits on what lenders can legally charge. Some lenders may even waive these charges entirely, offering a cost-effective path to becoming debt-free.

Personal Loan Pre-Payment Charges & Conditions: Key Bank-wise Summary

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BanksInterest Rates

State Bank of India (SBI)

Charge : 3% on prepaid amount (Xpress Credit, Power & Pension Loans)

Waiver : No charge if closed using funds from the same loan scheme

Condition : As per the bank's T&Cs

HDFC Bank

Charge :

  • 13–24 months: 4%
  • 25–36 months: 3%
  • After 36 months: 2%

Condition:

  • No prepayment before 12 EMIs
  • Part payments can be made up to two times during the loan tenure, with a maximum limit of 25% of the principal amount per financial year.

Yes Bank

Charge :

  • 13–24 months: 4%
  • 25–36 months: 3%
  • 37–48 months: 2%
  • After 48 months: Nil

Condition :

  • Max 25% of principal allowed per year
  • Prepayment is allowed only after 12 EMIs

Citibank

Charge: At the bank’s discretion

Condition: Contact the bank directly

Kotak Mahindra Bank

Charge: ₹500 + GST per instance

Condition: Only after 12 months from the first EMI

Axis Bank

Charge: 2%–5% of the outstanding loan amount

Condition: As per the bank's T&Cs

HSBC

Charge: Up to 3.75% of principal outstanding

Condition: Only after the lock-in period as per the loan terms

IndusInd Bank

Charge: 4% of principal due (both salaried & self-employed)

Condition:

  • Salaried: After 12 EMIs
  • Self-employed: After 6 EMIs

IDBI Bank

Charge: Within 6 months: 2% of the due amount

  • After 6 months: Nil

Condition: New loan not allowed for 12 months post-prepayment

South Indian Bank

Charge:

  • Within 1 year: 4%
  • After 1 year: 2%

Condition: No prepayment before 1 year

Punjab National Bank

Charge: Nil

Condition: As per the bank’s T&Cs

Central Bank of India

Charge: Based on loan type

Condition: As per the bank’s T&Cs

Dhanlaxmi Bank

Charge: 2% + GST on principal

Condition: Allowed before or after 12 EMIs

J&K Bank

Charge: Nil

Condition: As per the lender’s T&Cs

Tata Capital

Charge: 2.5% + GST if prepaying over 25% of principal

Condition:

  • No part prepayment before 6 months
  • Only 1 part prepayment/year (25% max)
  • 6-month gap between the two prepayments

Note – The prepayment charges will also add a 18% Goods and Services Tax (GST)

Why Banks Charge Prepayment Fees?

Banks earn interest for the entire loan tenure, and prepayment reduces this earning period. To offset this loss, many banks charge a prepayment fee.

These charges typically range between 4%–5% of the outstanding loan amount and may vary based on the lender and loan tenure. Some banks waive or reduce fees after a certain period, often post 3 years.

Advantages of Personal Loan Prepayment

  1. Get Debt-Free Sooner - Prepaying your personal loan helps you close your debt earlier than scheduled. It also means no more EMIs eating into your monthly savings. The prepayment fee, usually nominal, is worth the financial relief.
  2. Save Big on Interest - Once the lock-in period is over, prepaying your loan—partially or fully—can significantly reduce the total interest paid. Even after paying a small prepayment charge, the savings on interest are substantial.
  3. Lower EMI Burden with Part-Payment- Partial prepayments reduce the outstanding principal, which directly lowers the interest outgo. It’s most beneficial when done during the initial years of the loan tenure.
  4. Boost Your Credit Score - Reducing or clearing your loan through prepayment positively impacts your credit score. A lower debt burden increases your creditworthiness for future loans.

Conclusion

Prepaying a personal loan can significantly reduce your overall interest burden and help you achieve financial freedom sooner. However, it’s essential to understand the Personal Loan Pre-Payment Charges that may apply. These fees vary across lenders and often depend on how much of the loan tenure has been completed. While some banks charge up to 4%–5% of the outstanding loan amount, others may waive the charges entirely after a specific period.

Before making any prepayment, review your loan terms carefully, consider the impact of the fee on your savings, and check if your lender follows RBI’s guidelines on prepayment charges. When planned wisely, prepayment remains a powerful tool for reducing debt and improving your credit profile.

Frequently Asked Questions (FAQs)

How much pre-payment fee do banks usually charge?

Do any banks offer personal loans without pre-payment penalties?

How do part-prepayments work?

Can pre-payment affect my credit score?

How do I find out the pre-payment charges on my loan?

Are lenders bound by RBI rules for pre-payment charges?

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