Prepayment Penalty
✓ Last verified 14 Sep 2026
The short version
A prepayment penalty is a fee charged for paying off a loan earlier than scheduled - banned by RBI on floating-rate loans to individuals for non-business purposes, but still allowed (if disclosed) on fixed-rate loans.
See our article on reading a loan sanction letter for the full context - in short, RBI prohibits foreclosure/prepayment charges on floating-rate loans taken by individuals for non-business purposes, and from 1 January 2026 this protection extends to floating-rate business loans for individuals and MSEs too (for loans sanctioned or renewed on or after that date). Fixed-rate loans can still carry a prepayment charge, as long as it's clearly disclosed in the sanction letter and loan agreement upfront - checking which category your loan falls into before signing tells you whether early prepayment (see our prepayment strategy article) will be free.
Want this worked out for your own numbers?