Key Takeaway
Under RBI guidelines, floating-rate loans have zero prepayment/foreclosure penalties for individual borrowers. Fixed-rate loans may carry 2–4% foreclosure charges on the outstanding principal.
3,00,000
3%
18%
Foreclosure Penalty9,000
GST on Penalty1,620
Total Payout Required3,10,620
Foreclosure Cost Summary:
- Outstanding principal to pay off: ₹3,00,000.
- Base bank foreclosure penalty (3%): ₹9,000.
- GST component on penalty (18%): ₹1,620.
- Total early closure charges (Penalty + GST): ₹10,620.
- Net absolute check paid to bank to close loan account: ₹3,10,620.
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Frequently Asked Questions
How are foreclosure charges calculated?
Foreclosure charges are calculated as a percentage (typically 2-4%) of the outstanding principal balance on the date of loan pre-closure.
Is GST charged on foreclosure fees?
Yes. Foreclosure fees are classified as services, attracting standard 18% GST (Goods and Services Tax) in India, which is added to the penalty charge.
Can I avoid foreclosure charges?
You can avoid them by prepaying under floating-rate options, making part-payments within the bank's yearly fee-free limits, or waiting until the end of tenure.
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