Personal Loan Prepayment Calculator: Is It Worth the Penalty?

How Personal Loan Foreclosure Charges Work in India

Unlike home loans on floating rates (where RBI mandates zero prepayment penalty), personal loans are unsecured and banks are legally allowed to charge foreclosure fees. Most banks charge 2-5% of the outstanding principal as a penalty. Some banks also impose a lock-in period of 3-12 months during which prepayment is not allowed at all.

The penalty is typically calculated on the prepaid amount, not the original loan amount. So if your outstanding is ₹3,00,000 and you prepay ₹1,00,000, the penalty applies only to ₹1,00,000. Always confirm this with your lender before making the payment.

When Should You Prepay a Personal Loan?

Prepay when:Your interest rate is above 14%, you have surplus funds earning less than the loan rate (savings account at 3-4%), and the net saving after penalty exceeds ₹5,000. The higher your rate, the more prepayment makes sense despite the penalty.

Don't prepay when:You're within the lock-in period, the penalty wipes out your interest savings, or you have higher-interest credit card debt to clear first. Always attack the most expensive debt first.

Personal Loan vs Home Loan: Prepayment Rules Compared

RBI's 2014 circular protects floating-rate home loan borrowers with zero prepayment penalty. Personal loans have no such protection. This means your bank can legally charge whatever penalty is mentioned in your loan agreement. Always read the foreclosure clause before signing.

This is also why personal loans should be your top priority for prepayment in a multi-loan portfolio — they have the highest rates and no penalty protection. Clear personal loans before making extra home loan payments.