Whether a charge is valid depends on the lender, interest-rate type, loan purpose, and sanction or renewal date. The exemptions are not the same for all fixed-rate and floating-rate loans.
Under the current RBI directions for commercial banks, prepayment charges are prohibited on floating-rate loans taken by individuals for non-business purposes. Special provisions apply to loans sanctioned or renewed from 1 January 2026, and business loans fall into separate categories. The relevant directions for NBFCs and cooperative lenders must also be checked. Read the sanction letter and Key Facts Statement rather than relying only on a brochure.
What should you do now?
- Check whether the loan is fixed-rate, floating-rate or dual-rate, and its status at the time of prepayment.
- Ask the lender for a foreclosure statement and the rule governing the charge in writing.
- If the charge is incorrect, use the grievance process and the applicable escalation route.
Which documents should you keep?
The sanction letter, agreement, KFS, interest history and foreclosure quote.
Do not make this mistake
Do not treat blanket claims such as “there will be no charges on all loans from 2026” as the rule applicable to your individual loan.
A hypothetical example
One loan is floating-rate and for personal use; another is a fixed-rate business loan. Different charges may appear in their foreclosure quotes. Compare them only after checking the lender, sanction date and applicable direction.
Do the rules also need to be checked for partial prepayment?
Yes. The validity of a charge must be determined by considering the type of payment and the applicable directions.
Legal basis and useful sources
- RBI — Commercial Banks: Responsible Business Conduct Directions, 2025, current consolidated source
- RBI/2025-26/64 — Pre-payment Charges Directions; FIDC-hosted copy of the original RBI document
This is general legal information. Advice may differ depending on your facts, the applicable law and state rules.