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What are Personal Loan Foreclosure Charges? When Do You Pay Them?
02 Oct 2019 | 5 min read
A personal loan is one of the best options for individuals to overcome financial emergencies they experience in buying a house, car, and big-ticket items; and paying miscellaneous bills like that of credit cards and education fees.
When you get a personal loan, you have to repay it in monthly instalments, generally known as EMI, over a period specified by a lender. However, if you make the full repayment of your remaining personal loan in one single payment ahead of the tenure, it is called personal loan foreclosure or prepayment.
What are personal loan foreclosure charges?
When you prepay a loan, such as a personal loan or home loan, before the scheduled tenure, some banks or financial institutions charge you some percent of your outstanding balance, known as a foreclosure charge. Foreclosure charges on a personal loan may vary from lender to lender and tenure to tenure. Some lenders set a lock-in period of, say 12 EMIs or one year, during which foreclosing a personal loan will incur penalties. However, after the lock-in period, the borrower can close the loan in one single payment.
Foreclosure charges on personal loans by leading lenders in India
Here is a list of foreclosure penalties charged by top lenders on a personal loan
|
Lenders |
Foreclosure charges |
Prepayment period |
|
State Bank of India |
|
Terms and conditions apply |
|
5% on principal outstanding + GST |
Any time during the loan tenure |
|
|
HDFC Bank |
Prepayment charges on HDFC Bank personal loan foreclosure are as under:
|
No part or full prepayment is allowed before the repayment of 12 EMIs |
|
Axis Bank |
No foreclosure charges are applicable on an Axis Bank personal loan |
Foreclosure is possible only after all outstanding dues are cleared |
|
Yes Bank |
Yes Bank’s foreclosure charges on a personal loan are as under:
|
Foreclosure of a personal loan is allowed after repayment of 12 EMIs |
|
Citibank |
Up to 4% of the outstanding balance |
After payment of 12 EMIs, for loans disbursed after 1 October 2015 After 6 months of disbursal of a loan amount, for loans disbursed before 1 October 2015
|
|
IndusInd Bank |
For salaried individuals: 4% of the principal outstanding For self-employed individuals: 4% of the principal outstanding |
A salaried individual can foreclose the loan after the payment of 12 EMIs. A self-employed individual can foreclose the loan after the payment of 6 EMIs. |
|
Kotak Mahindra Bank |
Foreclosure charges applicable are 5% + GST on principal outstanding |
Foreclosure is possible only after 12 months from the date of your first EMI. 1 month foreclosure intimation period is compulsory. |
|
HSBC Bank |
Up to 3.75% of the principal outstanding or as per the terms and conditions in your personal loan agreement |
Foreclosure is possible post 12 months of loan the disbursement |
|
IDBI Bank |
Foreclosure of a personal loan after 6 months of disbursal may not incur any charges Foreclosure of a personal loan before 6 months of disbursal will attract a charge of 2% of the outstanding principal |
Foreclosure is possible after 6 months of the loan disbursement. Before 6 months it will incur foreclosure charges |
|
Punjab National Bank |
No fee will be applicable on prepayment of the loan |
As per the terms and conditions in your personal loan agreement |
|
Corporation Bank |
No fee will be applicable on prepayment of the loan |
As per the terms and conditions in your personal loan agreement |
|
Central Bank |
Prepayment charges applicable will depend on the type of personal loan being borrowed |
As per the terms and conditions in your personal loan agreement |
|
South Indian Bank |
Loan being foreclosed within 1 year of disbursement – 4% of the outstanding principal Loan being foreclosed after 1 year of disbursement – 2% of the outstanding principal |
As per the terms and conditions you have negotiated with the bank |
|
Andhra Bank |
No foreclosure charges will be levied on the personal loan |
AS per the terms and conditions in your personal loan agreement |
|
Oriental Bank of Commerce |
No prepayment charge on foreclosure of the loan |
AS per the terms and conditions in your personal loan agreement |
|
Tata Capital |
A charge of 4.5% of the principal outstanding + GST will be applicable |
Foreclosure is possible only after six months of disbursal |
|
Dhanlaxmi Bank |
A charge of 2% of the principal outstanding + Service Tax will be applicable |
As per the terms and conditions in your loan agreement |
|
Bajaj Finserv |
4% + applicable taxes on principal outstanding |
After 1 month from the date of the loan disbursal |
|
IIFL |
A charge of 6% of the principal outstanding will be applicable |
After six months of the loan disbursement |
|
Fullerton India |
Foreclosure charges on a personal loan from Fullerton India are as under:
|
Foreclosure is not allowed before 6 months from the loan agreement date |
What are the benefits of personal loan foreclosure?
- Freedom from debt
- Reduced interest outflow
- Improvement in credit score
Pre-closure is done to reduce the cost of credit. If you make the full prepayment towards your personal loan in one single payment, you save a lot on the interest.
Let’s take an example –
Personal Loan = Rs. 2 lakh
Interest Rate = 15%
Tenure = 5 years
EMI = Rs. 4758
Total interest rate payable over the entire loan tenure would be Rs. 85,479.
By the end of the first years, you would have paid Rs. 29,039 towards premium and Rs. 28,057 as interest. If you decide to foreclose the loan now, you can save Rs. 57, 422 in the form of the interest rate.
But it is possible only if the lender does not charge a prepayment penalty. If you think you can foreclose a personal loan, you should apply personal loan with a lender that doesn’t charge prepayment penalties. Like personal loan, there are foreclosure charges on home loans and auto loans also.
Here you can read – personal loan balance transfer to save on your EMI