Car Loans

• Usually come with penalties, especially in the first 12-24 months of repayment.
• For instance, some lenders charge 3% of the outstanding for part payment within the first 24 months, dropping to zero afterward.
• After 24+ EMIs, many lenders waive the charges entirely. Examples include ICICI, Axis, and HDFC.
  

Education Loans

• Many education loans waive prepayment charges, but this varies by lender and scheme type.
• Especially for subsidized or government-supported loans, always confirm with your lender or scheme terms.
  

Business Loans

• Terms related to prepayment fees can differ significantly across banks and loan types, based on factors like rate type, borrower category, and seasoning period.
• However, effective January 1, 2026, RBI has banned prepayment charges even for individual and MSE business loans with floating rates, up to ₹50 lakh, subject to lender type.
• Loans capped under ₹50 lakh from specified institutions are also exempt under the new rules.  

RBI Rules on Prepayment

No prepayment charges are allowed on floating‑rate loans taken by individuals for non‑business purposes, as well as on business loans to individuals or MSEs under ₹50 lakh, if loans are sanctioned or renewed from January 1, 2026.

 What the RBI Directive Says

• Under the RBI (Pre‑payment Charges on Loans) Directions, 2025, lenders are prohibited from charging prepayment or foreclosure fees on floating‑rate loans for individual borrowers (non-business purposes), including co-applicants.
  
• The rule applies across regulated entities, including
  • Commercial banks (excluding payment banks)
  • Co-operative banks
  • All NBFCs and housing finance companies
  • All India Financial Institutions
    
• Borrowers can prepay in part or full, from any source of funds, with no lock-in period. Even if the lender initiates the prepayment, no charges can be applied.
  

New RBI Rule Means for You (Borrowers & MSEs)

• If your loan meets the RBI criteria (floating rate, individual borrower, sanctioned after Jan 1, 2026), you’re likely exempt from prepayment charges.
  
• Micro and Small Enterprises (MSEs) also benefit:
  
  • If their floating-rate business loans are sanctioned by major banks, NBFC‑ULs, or AIFIs, no prepayment charges apply, regardless of loan amount.
  • Smaller lenders like Small Finance Banks and Regional Rural Banks cannot charge fees for floating-rate loans up to ₹50 lakh.
    

Important Exceptions & Details

• Fixed-rate loans are not covered by this rule, even if taken by individuals or MSEs. Prepayment charges may still apply per lender policy.
• Dual-rate or hybrid loans that are floating at the time of prepayment qualify for exemptions, but if they are fixed during repayment, penalties may apply. 
• Any applicable prepayment charges must be clearly disclosed in:
  • The sanction letter
  • The loan agreement
    

Lender Prepayment Policies for Loans

Here are real-world prepayment fee practices from leading Indian banks, so you know who charges what and when.

HDFC Bank – Personal Loan Charges

• HDFC imposes prepayment or foreclosure fees ranging from 2% to 4% of the outstanding principal, typically after paying 12 EMIs.
  

ICICI Bank – Car Loan Charges

• For ICICI car loans:
  • 3% + GST applies for part- or full-prepayment up to 24 months of seasoning
  • After 24 months, no prepayment charge is imposed.
    
• Full foreclosure within 12 months: often capped at 5% + GST on remaining principal; waived thereafter.
  

HDFC Loan for Professionals (Business Profile)

• Prepayment is allowed after the first EMI, but fees vary by loan duration:
  • 4% if closed within 1–24 months
  • 3% during 25–36 months
  • 2% after 36 months.
    
• However, no foreclosure charges apply if the loan is for ≤ ₹50 lakh or held by an MSE entity.
  

Know If Your Loan Has Prepayment Charges

You can determine if your EMI loan includes prepayment fees by reviewing your loan documents or directly confirming with your lender.

1. Check Your Loan Agreement or Sanction Letter
   Begin by reviewing your sanction letter and loan agreement, which typically outline the details of any penalties or conditions associated with prepayment. Typical section titles include:

• “Prepayment Terms”
• “Foreclosure Clause”
• “Part Prepayment” or “Full Prepayment Penalty”

These sections will specify the percentage fee, lock-in period, and whether the penalty applies to partial and/or full prepayment.

1. Refer to the Key Facts Statement (KFS)
   For consumer loans, lenders are required to provide a Key Facts Statement summarizing fees, including foreclosure and part-prepayment penalties. If you see any prepayment terms in your KFS, they must legally comply with RBI guidance.

1. Confirm with Lender Support
   If terms are unclear in your documents, call customer care or visit your bank branch to ask:

• What prepayment or foreclosure charges apply?
• When does the charge start (e.g., after 6 or 12 EMIs)?
• Is there a waiver after a certain number of EMIs?
  

1. Compare Against Loan Type and Lender Patterns
   Even if you identify a fee clause, double-check whether it should apply based on:
   Loan type (floating-rate vs. fixed, type of loan: home, personal, auto)
   Sanction/renewal date (e.g. if it’s on or after January 1, 2026, floating-rate loans for individuals should have no fee per RBI rules)
   

This helps you determine whether a fee is valid, outdated, or incorrectly applied to your contract.

Tips to Avoid or Minimize Prepayment Charges

You can minimize or avoid prepayment fees by choosing the right loan type, timing your repayment, and checking lender policies upfront.

1. Leverage Floating or Hybrid Rate Loans
   Floating-rate loans are exempt from prepayment charges (if eligible post-Jan 1, 2026).
   Hybrid loans qualify during their floating phase.
   Check your rate at the time of repayment.

1. Prepay Only After the Lock-In Period

• Many lenders impose a lock-in period (e.g., 6-12 EMIs) during which prepayment fees apply. After this period, charges are often waived or reduced.
  

1. Compare Offers for Zero-Foreclosure Options

• Some lenders highlight zero prepayment fees in their product or marketing materials.
  

1. Negotiate with the Lender

• If you’ve maintained a clean repayment history, try negotiating with the bank for a fee waiver or reduction.
  

1. Read and Confirm Prepayment Terms Early

• Carefully review:
  • Sanction letter
  • Loan agreement
  • Key Facts Statement (KFS)
    
• Look for clearly stated fees; RBI mandates full disclosure and prohibits undisclosed or retrospective charges.
  

Conclusion

Not all EMI loans come with prepayment penalties. Reviewing your loan documents, understanding the RBI rules, and comparing lender policies can help you save thousands in unnecessary prepayment penalties. However, fixed-rate loans, especially car loans and earlier home loan variants, may still carry prepayment fees, typically ranging from 2% to 5% of the outstanding principal.

Planning ahead and understanding your loan terms can help you save money, pay off your loan early, and avoid unwanted charges.