RBI prepayment charges rule 2026: who it frees, who still pays

The source is RBI's Pre-payment Charges on Loans Directions, 2025, dated 2 July 2025, published at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12878. They apply to commercial banks other than payments banks, to co-operative banks, NBFCs and All India Financial Institutions, and to loans sanctioned or renewed on or after 1 January 2026.

For a floating-rate loan to an individual for a non-business purpose, with or without a co-borrower, the lender cannot charge for prepayment. That holds for a part-payment as much as a full closure, whatever the source of the money, and with no minimum lock-in. Floating-rate business loans to individuals and micro and small enterprises get the same treatment from commercial banks, Tier 4 urban co-operative banks, upper-layer NBFCs and All India Financial Institutions. Small finance banks, regional rural banks, Tier 3 urban co-operative banks, state and central co-operative banks and middle-layer NBFCs cannot charge on such loans up to a ₹50 lakh sanction.

A dual-rate loan, fixed for a while and floating after, is judged by the rate it carries on the day you prepay. That makes waiting look clever, so price it. Take the ₹5 lakh loan used on this page as if it were fixed for its first 24 months and floating after, sanctioned in 2026. After 18 EMIs you have the money. Closing now costs ₹18,042. Waiting six EMIs for it to float avoids the charge but costs ₹23,653 in interest, so waiting loses ₹5,611. It pays only when the switch is close: four more EMIs carry ₹16,090 of interest against the ₹18,042 charge, five carry ₹19,913.

Yes, on any loan that fails one of the four tests, and a fixed-rate personal loan fails the first. For those loans the charge, if any, is set by the lender's approved policy. The same goes for a loan sanctioned before 1 January 2026 that has not been renewed since: the directions replace older RBI circulars on foreclosure charges from their effective date, and a loan sanctioned earlier stays under the rules of its period and its own agreement. A floating-rate business loan above ₹50 lakh from the second group of lenders is also back to policy.

The rule still does four things for a loan under the directions that can carry a charge. None of them caps the rate of the charge. Four percent, two percent or nil on a fixed-rate loan remains the lender's call; the directions make it visible and fix what it is charged on.

The KFS, or Key Facts Statement, is RBI's standard summary of a loan, set out in the circular of 15 April 2024 at https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12663. Every new retail and MSME term loan sanctioned on or after 1 October 2024, including a fresh loan to an existing customer, must come with one, in a language the borrower understands, with an APR computation sheet and a repayment schedule. The same summary appears as a box inside the loan agreement. For a loan sanctioned from 1 January 2026, the prepayment directions add that the KFS must say whether prepayment charges apply.

Three parts of the KFS circular matter when you plan to close early. A fee or charge not mentioned in the KFS cannot be charged at any stage of the loan without your explicit consent. A KFS for a loan of seven days or more stays valid for at least three working days, and the lender is bound by its terms if you accept within that time, so there is room to read the prepayment row before committing. And a digital loan comes with a cooling-off period, set by the lender's board at no less than one day, in which you can exit by paying the principal and the proportionate APR with no penalty.

Credit card receivables are exempt from the KFS circular, so the terms for closing a card EMI conversion early live in the card's own terms, not in a KFS.

The loan the page runs on, all illustrative: ₹5 lakh, fixed at 13 percent, 60 months, an EMI of ₹11,377 and ₹1,82,592 of interest if it runs to term. The foreclosure charge is 4 percent of the amount prepaid plus 18 percent GST on the charge, 4.72 percent all in.

After 18 EMIs the borrower has paid ₹87,027 of interest and only ₹1,17,751 of principal. That is 47.7 percent of the loan's lifetime interest gone against 23.6 percent of the principal, which is how a reducing-balance loan front-loads interest, and why ₹3,82,249 is still owed. Closing now looks like this.

The same 4.72 percent charge, closing at different points in the 60 months. Whether your rate is worth escaping by switching rather than closing is a separate sum, worked on the page on overpaying on your loan.

Same loan, 18 EMIs paid, ₹4.1 lakh in savings. Closing takes ₹4,00,291 and leaves ₹9,709. A ₹2 lakh part-payment carries a ₹9,440 charge and leaves ₹2,00,560, and where the lender offers the choice it can be taken two ways: keep the EMI and finish sooner, or keep the end date and pay a smaller EMI. On a loan the rule covers, part-payment is charge-free as well, from the first EMI.

Two illustrative offers on ₹5 lakh over 60 months: 13 percent with a 4 percent charge, and 13.5 percent with none. The EMI gap is ₹128. Run both to the end and the nil-charge loan costs ₹7,703 more in interest. Close at EMI 18 and it comes out ₹14,573 ahead: the ₹18,042 charge avoided, less ₹3,469 of extra interest paid on the way.

Every sum on this page starts from three numbers: the amount still owed, the rate, and the EMIs left. Most borrowers know the EMI and guess the rest. Unyfy reads your bank and card transaction emails and, on Android, transactional SMS, with no manual entry, so each loan shows up from its own debits: the name on the EMI, the amount, the date it leaves your account, and what the coming month is already committed to. It computes a blended rate across all your loans and cards and a live FOIR from the accounts it can see. Where a loan is priced above what the same borrower would be offered today, it flags it and says whether switching is worth it after the fee.

Bring your foreclosure or part-payment charge from your sanction letter or KFS: that is the row the sum needs from your own documents, and when the charge makes a switch pointless, leaving the loan alone is the right answer. Unyfy is not a lender. It never asks for your bank password or UPI PIN, and every payment is one you authorise. Install Unyfy on Android, or use the web app at app.unyfy.co.in on an iPhone.