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.
Conditions of Personal Loan Foreclosure Charges
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. The bank furthermore 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 | Forecloure allowed only if 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 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 Part 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 of the loan reduces 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 or 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 foreclosure.