Personal Loan Foreclosure Fees: Charges & Interest Cost Savings

 

Foreclosure charges are fees that a lender levies when you repay your personal loan before the repayment tenure. It allows the borrowers to reduce EMIs and overall interest costs. The RBI has prohibited banks and NBFCs from levying charges on part-prepayment or foreclosure on personal loans offered at floating interest rates.

Limits on Personal Loan Foreclosure

Some banks and NBFCs put restrictions on the foreclosure of personal loans until the borrowers repay a pre-determined number of EMIs. For instance, IndusInd Bank allows its personal loan borrowers to prepay only after payment of 12 EMIs. Further, for HDFC Bank Personal Loans, borrowers can prepay only up to 25% of their principal outstanding. Furthermore, the bank allows for a foreclosure loan once in the financial year and twice during the loan repayment tenure.

Foreclosure Fees on Personal Loans Offered by Top Banks

Top Banks	Foreclosure Fees/Pre-payment Charges
SBI	2% on the prepaid amount
HDFC Bank	Up to 24 EMI – 4% of the outstanding principal Post 24-36 EMI – 3% of the outstanding principal Above 36 EMI- 2% of the outstanding principal
ICICI Bank	After payment of 1st EMI: 3% on principal outstanding After payment of 12 or more EMIs: Nil
Axis Bank	For loans disbursed on or after April 1, 2024: EMIs paid up to 36 months: 3% on the principal outstanding EMIs paid above 36 months: 2% on the principal outstanding
IndusInd Bank	4% of the principal remaining after 12 estimated monthly instalments
Kotak Mahindra Bank	Up to 3 years – 4% on outstanding principal; After 3 years – 2% on outstanding principal
YES Bank	Foreclosure allowed only if the borrower has paid a minimum of 12 EMIs:- 4% of principal outstanding (13-24 months of EMI repayment) 3% of principal outstanding (25-36 months of EMI repayment) 2% of principal outstanding (37-48 months of EMI repayment) NIL (Above 48 months of EMI repayment)

Foreclosure Fees on Personal Loans Offered by NBFCs

Top Banks	Foreclosure Fees
Tata Capital	4.5% on the principal outstanding An additional 2% over and above the mentioned foreclosure charges if foreclosure is made during the lock-in period of 12 months
Aditya Birla Capital	Up to 4% of the principal outstanding (Foreclosure is allowed only 12 months after the loan disbursal)
Poonawalla Fincorp	NIL (if prepaid from own sources) 4% (if prepaid from other sources)
SMFG India Credit	Up to 7%

Personal Loan with NIL Foreclosure Charges

Check below the banks offering personal loans with zero foreclosure charges:

Banks	Foreclosure Charges
IDFC FIRST Bank	NIL (requires a sanction letter)
YES Bank	NIL after repayment of 48 EMIs
HDFC Bank (for Golden Edge Personal Loan)	Zero foreclosure charges after repayment of 12 EMIs (closure from own fund)
Punjab National Bank	NIL

How Foreclosure Can Reduce Your Interest Cost

The primary objective of prepaying or foreclosing a personal loan is to reduce its overall interest costs. If you foreclose your personal loan during the initial years of repayment tenure, you can save high on interest costs. But, borrowers should note that prepaying the loan is only if there is a savings in interest costs after accounting for charges levied in the process of foreclosure.

Know the Difference Between Foreclosure and Prepayment

Foreclosure refers to when you prepay the entire outstanding personal loan amount in one go. On the other hand, part prepayment of a loan is when you prepay your outstanding balance partially. Your liability for the loan is reduced but not completely eliminated.

Important Things to Consider Before Foreclosing a Loan

• Use online prepayment calculators to calculate your accurate net savings from loan foreclosure.
• Don’t sacrifice your emergency fund to foreclose a loan. This can surely lead to interest savings, but would lead to financial instability.
• Avoid redeeming your high-yield investments, like insurance policies or mutual funds, to prepay your loan without a cost-benefit analysis.
• As you have surplus funds, decide between investment and foreclosure in terms of your risk appetite, financial priorities, market conditions, etc. Check if the returns on investments are higher than the interest savings on the foreclosure of a personal loan.

How to Foreclose a Personal Loan

You need to notify your lender, settle all outstanding dues, including applicable foreclosure charges, plus GST, and submit the required documents to close your personal loan. Your lender will verify the documents submitted and initiate the foreclosure process upon receiving the outstanding loan amount and charges. Once the foreclosure process is completed, you’ll receive the loan closure documents. Note that a borrower should request a foreclosure quote stating the exact amount required to pay to foreclose a loan.

Documents Required for Personal Loan Foreclosure

The documents for personal loan foreclosure may vary among lenders. Given below are the general documents required by lenders:

• Identity proofs – PAN Card or Aaadhar Card
• Personal Loan details, such as the loan account number
• Loan approval letter, loan account statement, etc, issued by your lender

Loan Closure Documents

• Loan Closure Certificate
• No Objection Certificate (NOC)
• No dues certificate
• Acknowledgement letter