Personal Loan Prepayment Charges & Norms of Top Lenders

Last Updated : April 23, 2020, 11:49 a.m.

Nobody wants to be under the debt burden for long. And the same applies to personal loan borrowers too. As the personal loan interest rate finds itself in the double-digit zone, you may want to get rid of it as soon as possible. The interest rate can go up to 20%-25%, chucking out interest from your pocket. Although the maximum repayment period is capped to 5 years in a personal loan , taking it at a greater rate will only make you pay more interest to the lender. So, you should look to prepay the loan fully or in parts by using the growth in your income over time. As a result, your interest liability will come down. But there are some charges and norms associated with the same. Let’s find out all here!

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So, What are the Charges and Norms?

If your personal loan is running at any of the following top lenders, you should know the applicable charges and norms.

Lenders	Prepayment Charges	Prepayment Norms
HDFC Bank	Prepayment when made between 13th-24th months - 4% of the principal outstanding Prepayment when made between 25-36 months - 3% of the principal outstanding Prepayment when made after 36 months - 2% of the principal outstanding	The Full or part pre-closure application can be processed only after the successful payment of the first 12 Equated Monthly Installments (EMIs) Part-prepayment allowed upto 25% of the principal outstanding. You can part pay only once in the financial year and twice during the loan tenure. The charges for the same will apply to the part payment amount
ICICI Bank	5% of the principal outstanding	Prepayment allowed only after the successful payment of the first 12 EMIs or more Part-prepayment not allowed
Kotak Mahindra Bank	5%-6% of the principal outstanding	Lock-in period- 12 months However, the bank allows prepayment before the lock-in period. If you do so, the upper charge limit of 6% is applicable. Else you will pay 5%
IndusInd Bank	As applicable	Prepayment allowed only after the successful payment of the first 12 EMIs No part-prepayment allowed
YES BANK	Prepayment when made between 13-24 months - 4% of the principal outstanding Prepayment when made between 25-36 months - 3% of the principal outstanding Prepayment when made between 37-48 months - 2% of the principal outstanding Prepayment when made after 48 Months - NIl charges 2% on the part payment amount when you opt for part prepayment	Prepayment in full or parts allowed after the successful payment of the first 12 EMIs
IDFC First Bank	5% of the principal outstanding when making a full prepayment of either simple or smart personal loans 2% of the principal outstanding when making a part prepayment of smart personal loans	Part prepayment not allowed in simple personal loans Part prepayment allowed upto 40% of the principal outstanding once in a financial year under smart personal loans. You can avail of this facility post three 3 successful EMI payments

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

Shall You Go for a Balance Transfer to Prepay Your Existing Personal Loan?

The full prepayment of the existing personal loan can be done either from your own sources or via a balance transfer. You would know personal loan balance transfer is a process by which you can transfer the existing loan to another lender at a lower rate. This reduces the interest obligations of borrowers. But this is ideal when the existing personal loan tenure is quite a few years away from being over and the rate offered by the new lender is at least 3%-4% lower than the existing one. An example below will help you understand the concept better.

Example – You are servicing a 5-year personal loan of say 8 lakh at a 15% interest rate. In that case, you must have been paying an EMI of INR 19,032. The loan has run for 2 years and a new lender has come with a balance transfer offer of 11%. If you agree, how will it reflect on your repayment? Check this out in the table below.

Repayment Aspects	Details
Original Loan	INR 8,00,000
Interest Rate	15% Per Annum
Tenure	5 Years
EMI @15%	INR 19,032
Estimated Interest Outgo @15%	INR 3,41,917
Interest Paid Till Now	INR 2,05,786
Outstanding Balance at the End of 2 Years	INR 5,49,019
EMI Payable at the New Rate of 11% for the Remaining 3 Years	INR 17,974
Interest Payable at the New Rate of 11% Over the Remaining 3 Years	INR 98,051
Interest Paid Till Now + Interest Payable Over the Next 3 years	INR 3,03,837
Estimated Savings in Terms of EMI	INR 1,058
Estimated Savings in Terms of Interest Payment	INR 38,080 (3,41,917-3,03,837)

The lender will ask for a fee for the balance transfer. Now that fee could be a flat amount or a certain percentage of the outstanding loan balance. Make sure the savings remain substantial despite the fee levied on the transfer.

Personal Loan Prepayment Charges & Norms of Top Lenders

So, What are the Charges and Norms?

Shall You Go for a Balance Transfer to Prepay Your Existing Personal Loan?

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