What are Personal Loan Foreclosure Charges in India?

"Learn about personal loan foreclosure, applicable rules, and foreclosure charges on personal loans before closing your loan early."

Personal Loan Foreclosure Charges
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Anjali Singh

7 mins read

Published: 9 April 2025

Updated: 23 April 2025

Repaying your personal loan through monthly EMIs helps you stay financially planned and stress-free, avoiding hefty one-time payments. However, if you have hit the jackpot and want to repay your loan before the scheduled tenure, in banking terms, it is referred to as foreclosure. While this will help you stay stress-free of regular payments and make you open to new loans, it may come with certain charges.

Understanding these charges will help you make a much better and wiser financial decision. In this blog, we’ll cover everything from how to foreclose your personal loan to RBI guidelines regarding the foreclosure process.

Benefits of Personal Loan Foreclosure

Is it good to foreclose a personal loan? To know the answer, here are some key benefits that come with foreclosure of a personal loan:

1. Save On Interest

If you foreclose your loan, you can save on the high-interest rates that you’d have to pay at the end of the term. Especially, if you have chosen a floating interest rate and you can see a rise in the rate later, paying the amount before it rises will save you a chunk of your income.

2. Debt-Free Status

Once your loan is paid, you will go back to being a debt-free individual without having any financial burden. This will open you to many investment opportunities, along with easy approval for new loans.

3. Improved Loan Approval

Foreclosing your loan will increase your chances of loan approval and overall credit history. A better debt-to-income ratio will allow you to access better loan options and lower interest rates.

Ready for a better loan experience?

Understanding Foreclosure Charges on Personal Loan

Personal loan foreclosure charges are the fees imposed by the lender if you choose to foreclose your loan before the agreed-upon loan period. It comes with various benefits and reduced loan liability. Foreclosure charges are typically a percentage of the principal amount or the remaining amount.

Note: Prepayment and foreclosure are different, although related, loan repayment scenarios. Prepayment involves paying off a part or the entire loan before the scheduled due date, while foreclosure is the complete repayment of the loan, effectively closing the account, before the end of the loan term.

Some banks also have zero or minimal fixed foreclosure charges on personal loans. However, it is crucial to go through the terms and conditions when applying for the loan or opting for foreclosure of the loan.

Can Banks Charge Foreclosure Charges on Personal Loans?

Yes, and many banks and NBFCs charge a percentage of the outstanding or principal amount as the foreclosure charges. If you foreclose your loan, then the bank doesn’t receive the agreed interest rate for the remaining tenure. To cover this loss, a small percentage, around 2 - 6 %, a foreclosure fee is levied. You can use an online personal loan foreclosure calculator to help you know the remaining amount for your loan.

Unsure about how are foreclosure fees calculated?

Example: Let’s say you take a personal loan of ₹5,00,000 for five years with a foreclosure charge of 4%. If you decide to foreclose the loan after two years, and the remaining loan balance at that time is ₹3,00,000, the foreclosure fee will be:

Foreclosure Fee = 4% of ₹3,00,000 = ₹12,000

This means you will need to pay ₹12,000 as a foreclosure charge along with the remaining loan balance to close the loan early.

Planning to switch your loan?

What is the RBI Rule For Foreclosure?

RBI guidelines mention that certified banks and NBFCs can’t levy prepayment or foreclosure fees on loans that are credited on a floating rate of interest. This policy focuses on personal loans or loans that are sanctioned for reasons other than business. This includes both single and co-applicant loans.

Does Foreclosure Affect CIBIL Score?

One of the key doubts that can creep in if you’re thinking about foreclosing your loan amount is the impact it will have on your CIBIL score. While it may be a great financial decision to foreclose your loan, it can negatively affect your credit score.

Foreclosing your loan account can result in a double or even triple-digit drop in your CIBIL score. While it sounds surprising, this is due to the limited data available to assess your credit score by the bureau.

Explore Foreclosure Charges on Personal Loans by Popular Banks

If you are searching for what happens if I foreclose my EMI? The answer depends on the choice of bank and the type of loan. Many reputable banks, such as Axis, HDFC and others, levy a small foreclosure fee on their personal loan.

1. Foreclosure Charges on Personal Loan SBI

    • SBI Xpress Credit, SBI Quick Personal Loan and SBI Pension Loan.
    • Charges: 3 % on the prepaid amount. No prepayment/foreclosure charges on personal loan SBI, if the account is being closed by using the funds of the new loan issued under the same scheme.

2. HDFC Personal Loan Foreclosure Charges

    • Applicable For: Full and part payment.
    • Charges: Depending on the tenure or EMI completed. Prepayment or part payment is not applicable for 12 months.
      • Closed between 13-24 months - 4% of the outstanding amount + GST.
      • Closed between 24-36 months - 3% of the outstanding amount + GST.
      • Closed after 36 months - 2% of the outstanding amount + GST.
    • Part-payment is only made after servicing the 1st EMI, which is up to 25% of the principal amount. It is allowed only once per financial year and twice during the overall loan tenure.

3. Axis Bank Personal Loan Foreclosure Charges

    • Applicable For: Foreclosure and Part payment.
    • Charges: The Prepayment fee is charged on the part-prepayment amount
      • Closed before 36 EMIs - 3% of the outstanding amount + GST.
      • Closed after 36 EMIs - 2% of the outstanding amount + GST.
    • For personal loans disbursed from December 31, 2024, borrowers can prepay up to 25% of the outstanding loan annually without charges after 12 EMIs, with a 12-EMI gap between prepayments.

4. Foreclosure Charges on Personal Loan ICICI

    • Applicable For: Full and Part payments.
    • Charges: 3% of the outstanding amount. No charges after 12 EMIs.
    • For part payments, 3% + GST on the part payment amount for a period of 24 months. After 24 months, there is no charge.

5. Aditya Birla Personal Loan Foreclosure

    • Applicable For: Full and Part prepayments.
    • Charges: Foreclosure is allowed only after 12 months of the loan disbursement.
      • 4% of the outstanding amount + GST.
    • No part payment is allowed in the first 6 months. It is allowed only once in the first year.
      • No charges if the part payment is equal to 20% of the principal amount.
      • 3% + GST if the part payment amount is greater than 20% of the principal amount.

Foreclosing your current loan?

Which Bank Offers Zero Foreclosure Charges?

Several banks and NBFCs offer a personal loan with zero foreclosure charges to help you stay stress-free and build your credit history. Here are a few examples

    • IDFC Personal Loan: You don’t need to pay any foreclosure fee for personal loans disbursed by IDFC Bank. However, you need a sanction letter to approve your foreclosure process.
    • Punjab National Bank: For a zero foreclosure charges personal loan, you can choose PNB personal loans up to 20 lakhs. It doesn’t levy these charges whether the loan is sanctioned with fixed or floating interest rates.

Step-by-Step Guide For Personal Loan Foreclosure

To learn how to close personal loan early, review the steps:

1. Ask For a Foreclosure Statement

Reach out to your bank or financial provider to give you a foreclosure statement. This document has all the necessary information, such as outstanding amount, accrued interest and foreclosure charges.

2. Gather Documents

Every financial process requires some specific documentation. For foreclosure, you need to submit your personal documents such as address proof, identity proof, last EMI statement, bank account details, etc.

3. Make the Payment

Once you have collected the amount, including the foreclosure charge, pay it to the lender via cheque, online or cash.

4. Collect Closure Documents

After the payment is verified and completed, there are some documents that you must collect from the bank for future reference:

    • Acknowledgement Letter
    • Payment Receipt
    • No Dues Certificate
    • No Objection Certificate (NOC)
    • Personal Loan Closure Certificate

5. Update Your Credit Records

Make sure to update your CIBIL report or credit report of the loan as closed. This will help you build your score and avoid any penalties.

Conclusion

Foreclosing your loan account can be a lovely and powerful feeling. It sets you free from the liability of a loan and fixed monthly expenses. While it may come at a small foreclosure charge, you get a boosted credit history, better financial knowledge and attractive loan options in the future. However, to ensure the foreclosure process goes smoothly and hassle-free, opt for an online personal loan from My Mudra. We help you get the lowest interest rates, minimal documentation and an all-online application process for a quick and reliable procedure.

Ready to take the next step after foreclosure? Apply for a fresh loan with My Mudra in just a few clicks!

Also Read: Top 10 Instant Personal Loan Apps in India 2025

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Anjali Singh Assistant Manager
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Hey there, I'm Anjali Singh. With over 6 years of experience in finance, I specialize in creating content on banking, loans, and financial planning. My goal is to simplify complex financial topics and help readers make informed decisions through my articles.

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