Borrowing a personal loan can be a lifesaver during emergencies, big-ticket purchases, or for consolidating debt. But once the loan is disbursed, many borrowers start thinking: “Can I pay this off sooner and save on interest?” This is where the concept of personal loan prepayment comes into play.

But before we dive into the details of this concept, here are some key facts you should know:

• Most banks levy prepayment charges ranging from 2% to 5% of the outstanding loan amount, plus 18% GST.
• From January 2026, the RBI has mandated that no prepayment charges be levied on floating-rate personal loans for non-business purposes.
• Part-prepayments can significantly reduce both the loan tenure and interest burden.
• Early prepayment (especially in the first year) can maximise interest savings up to 67%, whereas prepaying in later years (like the fifth year) offers minimal savings.
• Always check your loan agreement. Some lenders waive personal loan prepayment charges after a set period, often post 3 years.

What is a Personal Loan Prepayment?

Prepayment of a personal loan refers to paying off a portion or the entire outstanding loan before the scheduled due date. Unlike regular EMI payments that follow a fixed schedule, prepayment allows borrowers to reduce their interest burden and loan tenure.

• Regular repayment vs. prepayment:

Regular Repayment: You pay EMIs as per your original loan schedule. Interest is calculated on the outstanding principal each month.

Prepayment: You pay extra funds over and above your EMI, which can be a partial amount or the entire loan, reducing total interest and/or tenure.

Borrowers usually consider prepayment of a personal loan when they have surplus funds, receive a bonus, sell an asset, or simply wish to be debt-free sooner.

What is the Repayment Period for a Personal Loan?

Most personal loans in India have a repayment tenure ranging from 12 to 60 months, although some lenders offer up to 84 months for larger loans. The repayment period plays a critical role in determining:

• EMI Size: A shorter tenure means higher EMIs but lower total interest, while a longer tenure means lower EMIs but higher interest over time.
• Total Interest Outgo: The longer you take to repay, the more interest accrues.
• Prepayment Strategy: Borrowers evaluate whether prepaying makes sense based on remaining tenure, interest rate, and financial goals.

A clear understanding of your loan tenure helps you decide the optimal time and amount for prepayment.

How Does Personal Loan Prepayment Work?

Personal loan prepayment can happen in two ways: full prepayment (foreclosure) or partial prepayment.

1. Full Prepayment (Foreclosure)

   Full prepayment, or foreclosure, occurs when a borrower decides to pay off the entire remaining loan amount before the end of the tenure. This option is ideal if you have a lump sum available and want to eliminate interest payments entirely. Example: Let’s assume that you take a personal loan of ₹4 lakh at 14% interest for 3 years.
   • You’ll pay EMI of ₹13,671 every month.
   • You’ll have to pay a total interest of ₹92,158 during your entire loan tenure.
   • You’ll pay a total interest of ₹48,790, that is, approximately 52% of the total interest cost during the minimum commitment period.
   Paying off your entire outstanding principal amount once the lock-in period ends will help you save 47% of the interest cost, that is, ₹43,368. If you decide to pay off your entire debt at a later stage, you still will be able to save a substantial amount of interest cost. Process:
   • Check your lender’s prepayment rules.
   • Calculate outstanding principal and applicable prepayment charges.
   • Make the payment either online or through your bank.
   • Obtain a foreclosure statement confirming that the loan is fully settled.

2. Partial Prepayment

   You can use your surplus money to make a part payment of your loan once the lock-in period is over. The part payment will reduce the total outstanding principal loan amount. The interest will then be charged on the new, reduced outstanding loan amount, thus helping you save money. Partial prepayment allows you to pay extra over your EMI without closing the loan. Example: Let’s understand this better with the help of an example:
   • You’ll pay off ₹1,15,263 of the total principal amount during the lock-in period.
   • You’ll be left with a balance amount of ₹2,84,737 once the minimum commitment period ends.
   A part payment of ₹1,00,000, once your lock-in period ends, will reduce your outstanding principal amount to ₹1,84,737. Interest will be charged on the reduced outstanding amount, thus helping you save a significant amount. Benefits:
   • Reduced EMI or shortened tenure.
   • Lower overall interest outgo.
   • Flexibility to prepay as per your financial convenience.

3. Prepayment vs. Foreclosure

   Features	Prepayment	Foreclosure
   Amount Paid	Partial or full	Full outstanding principal
   Interest Saved	Moderate to high	Maximum
   Loan Status	Continues	Closed
   Charges	May apply	May apply

Benefits of Personal Loan Prepayment With Freo

When you choose a personal loan with Freo, prepaying not just helps you save on interest but also gives you flexibility, control, and smarter ways to manage your money. Here’s how prepaying your loan with Freo can work to your advantage:

• Save on Interest: Since you no longer have to budget for EMIs, paying your personal loan off early will save you hundreds, even thousands of rupees in interest over the long run.
• Access More Cash: You are in a better financial position with access to more money at your disposal. You can then decide to save or redirect the funds towards other goals.
• Improved Debt-to-Income Ratio: Personal loan prepayment makes you an attractive borrower and improves your credit score. Your debt-to-income ratio becomes low, and lenders find you qualified for better loan terms and attractive interest rates if you ever decide to take a loan again.
• Peace of Mind: Getting rid of debt is a rewarding experience. You sleep better as you are not worried about setting aside money to pay off your EMI amount every month.

How to Prepay Your Freo Personal Loan

Freo makes it simple for you to close your personal loan when you’re ready. However, since Freo partners with banks and NBFCs to offer its loans, the foreclosure (or prepayment) process is handled manually through the lending partner. Here’s how you can go about it:

1. Contact Your Lending Partner

   If your Freo Personal Loan was approved through a partner bank or NBFC, you’ll need to contact them directly to initiate foreclosure. For example, if your loan was approved through RBL Bank, you can reach out using the details below:
   • Email: cardservices@rblbank.com
   • Phone: 1800 121 9050
   • Website: www.rblbank.com

2. Share Your Intent to Prepay:

   Inform the bank about your desire to foreclose the personal loan and request the exact outstanding balance along with any applicable personal loan prepayment charges.

3. Note the Applicable Charges

   • If you’re foreclosing a loan that was transferred from the Freo app to your bank account, there are no additional charges.
   • If you’re closing credit card spends converted into EMIs, a 3% prepayment penalty applies.

4. Important Condition:

   Currently, part pre-payments are not allowed on Freo Personal Loans. Once you make the full payment, ensure you obtain a loan closure confirmation from the partner bank for your records.

Drawbacks of Personal Loan Prepayment

While prepayment is attractive and comes with several benefits, you cannot deny its potential drawbacks. Here are some things to consider:

• Prepayment Penalties/Charges: Banks and NBFCs often levy fees for early repayment, impacting overall savings.
• Impact on Liquidity & Savings: Using a large sum to prepay may reduce your emergency funds.
• Opportunity Cost: Funds used for prepayment might yield higher returns if invested elsewhere.

Personal Loan Prepayment Charges of Top Financial Lenders

Different banks in India have different charges for prepayment of personal loans. Here’s a list of some of them:

Is Prepaying Your Personal Loan Right for You?

Personal loan prepayments come with their own sets of benefits, but they also have some drawbacks, as we saw earlier. Keeping those in mind, is it the right thing for you to do? Consider the following factors before making a decision:

• Interest rate on loan vs. potential investment returns: If your loan interest is higher than what you’d earn elsewhere, prepaying makes sense.
• Availability of surplus funds: Only prepay if it doesn’t compromise your liquidity.
• Lock-in period & charges: Evaluate if prepayment penalties outweigh potential savings.
• Financial goals: Decide whether you value being debt-free sooner over keeping funds invested.

FAQs on Personal Loan Prepayment:

1. Is it good to prepay a personal loan early?

   Yes, if you have the funds and prepaying is not tampering with your savings, then early prepayment can save significant interest, especially in the first year.

2. What is the lock-in period for personal loan prepayment?

   The lock-in period for personal loan prepayment is different for each lender, but it is typically 6 to 12 months.

3. Do all banks charge a penalty for prepayment?

   No, not all. Some lenders, like SBI does for their own funds, do not charge a penalty for prepayment post the lock-in period.

4. What is the difference between part-prepayment and foreclosure?

   Part-prepayment reduces EMIs or tenure while keeping the loan active, while foreclosure closes the loan completely.

5. Will prepayment improve my credit score?

   Yes, timely prepayment and lower outstanding debt can boost your score.

6. Can I use a personal loan balance transfer instead of prepayment?

   Yes, balance transfers can help lower interest rates without prepaying upfront.

7. How much minimum amount can I prepay on a personal loan?

   This depends on lender policies. But it is typically a fraction of the outstanding principal.

8. Is prepayment available on all personal loan types?

   Most personal loans allow prepayment, but check lender-specific terms.

Conclusion

Deciding to prepay your personal loan should be based on your financial situation, loan terms, and long-term goals. Early prepayment can save interest, reduce tenure, and improve financial health, but weigh the charges, liquidity needs, and opportunity costs before acting.

Disclaimers & Important Conditions:

• Prepayment and foreclosure charges vary by lender and may change without prior notice.
• Some lenders allow part-prepayment only after a lock-in period (generally 6–12 months).
• Charges depend on the outstanding loan amount, repayment tenure, and applicant profile.
• GST and additional taxes may apply over and above the mentioned charges.
• Special offers, waivers, or discounts may be available during promotional periods.
• Always verify the latest terms directly from the lender’s official website before applying.