The foreclosure charge that kept an expensive loan alive

While reviewing a friend's finances, I noticed he had a #PersonalLoan at a high interest rate, but also had sufficient surplus to close it.
When I asked why he wasn’t closing the loan, his reply was simple:
“The #foreclosure charges are too high.”

He’s not alone. Many borrowers delay closing loans simply because the prepayment penalties are excessive.

But here’s the good news! This is set to change from 1st Jan 2026.
As per the RBI’s latest directive, No foreclosure or prepayment charges can be levied on floating rate loans (personal, auto, MSME) up to ₹50 lakhs.
- Applies to: Scheduled commercial #banks, #NBFCs, cooperative banks
- No lock-in period, prepayment can start anytime

How will this help #borrowers?
- Close loans faster without worrying about charges
- Use surplus cash wisely instead of letting it leak into unplanned expenses or speculative trades
- Reduce overall interest burden and become debt-free sooner

Why lenders won’t be thrilled:
- Foreclosure charges are a revenue stream
- Early closures complicate their Asset-Liability Management (ALM)

Have you ever delayed repaying a loan due to foreclosure penalties? Would this new rule change your approach?