Key Takeaway
Fixed-rate loans in India may carry prepayment penalties of 2–4%. Floating-rate home loans and education loans have zero prepayment penalties per RBI regulations , making early payoff always beneficial.
Prepayment Feasibility Analysis:
- Future interest you would pay if you carry the loan: ₹38,929.
- One-time bank foreclosure charges: ₹9,000 (at 3% rate).
- Statutory 18% GST charged on processing fee: ₹1,620.
- Total closure charge (Penalty + GST): ₹10,620.
- Net absolute savings by pre-closing early: ₹28,309.
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Frequently Asked Questions
What is a loan early payoff penalty?
It is a foreclosure fee charged by lenders (usually 2-4% of the outstanding principal) to recover the interest income they lose when you repay a loan early.
Is prepaying a loan always a good idea?
Yes, in most cases. If the interest rate is high and you are early in the tenure, the future interest saved will heavily outweigh the bank's one-time foreclosure fee.
Are there foreclosure charges on home loans?
As per RBI rules, banks cannot charge foreclosure or prepayment fees on floating-rate home loans, personal loans, or retail loans taken by individual borrowers.
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