When you have surplus cash, closing an outstanding loan early eliminates future interest. However, you must factor in foreclosure fees.

RBI Regulations on Foreclosure Charges

• Floating Rate Loans (Individuals): Zero foreclosure or prepayment penalties permitted under RBI mandates for individual borrowers.
• Fixed Rate Personal Loans: Banks are permitted to levy a 2% to 5% pre-closure fee on the outstanding principal.

What is a Lock-in Period?

Many personal loan contracts enforce a 6 to 12 month lock-in period during which foreclosure is either barred or subjected to maximum fees. Always review your Key Fact Statement (KFS).