Are there any penalties for early repayment on personal loans?

Lenders may add prepayment penalties to personal loans as a way to make up for the interest they would miss out on if you repay your loan before the agreed end date. These charges are meant to balance out the loss of expected earnings from the interest portion of your EMIs.

The way these penalties are structured can differ from one lender to another. In certain cases, you might be asked to pay a set fee regardless of how much you owe at the time of prepayment. The penalty could also be calculated as a percentage of your remaining principal amount. It’s also possible for lenders to use other methods, such as charging an amount equal to a few months’ interest.

Because these policies are not uniform across the industry, it’s important to go through your loan agreement carefully to understand exactly what applies in your case. Some lenders may allow you to make partial prepayments or foreclose the loan without any extra charges, while others may have restrictions or higher fees, especially if you try to close the loan early in the tenure.

Before deciding to pay off your personal loan ahead of schedule check for any hidden charges or any other conditions. It will help you understand whether the savings on interest outweigh the cost of the penalty so that you can make a financially sound decision.