Quick answer: this guide is for part-prepayment while keeping the loan open. If you want to close the loan completely, use the separate foreclosure guide. For loans sanctioned or renewed on or after 1 January 2026, RBI’s Pre-payment Charges on Loans Directions, 2025 prohibit pre-payment charges on covered floating-rate loans to individuals for non-business purposes, regardless of the source of funds and without a minimum lock-in. Other cases require the current rule and the lender’s disclosed terms.
Ask what happens after a partial payment
Before sending extra principal, obtain the lender’s current part-prepayment process and ask which outcome it uses: lower EMI with similar tenure, shorter tenure with similar EMI, or a borrower choice between the two. Also confirm the minimum part-payment amount or increment if the product has one, the value date, and when the revised amortisation schedule will be issued.
- sanction or renewal date;
- floating, fixed or dual/special rate at the time of prepayment;
- individual versus business purpose;
- regulated lender category;
- current principal and proposed part-prepayment amount;
- the pre-payment clause in the sanction letter, agreement and KFS where applicable;
- the lender’s documented EMI/tenure recast method.
The lender charges a fee on a partial prepayment you think should be free
First check
Confirm the sanction/renewal date, rate type at the time of prepayment, loan purpose and lender category. Match those facts to RBI’s 2025 directions before treating the charge as prohibited.
What to do
Ask the lender to state the contractual and regulatory basis for the charge and how it was calculated on the amount being prepaid. Keep the KFS/sanction terms and the dated part-prepayment quote.
Done when
The lender either removes a charge that does not apply or gives a written basis that identifies why this loan falls outside the specified no-charge coverage.
If it still fails
Use the lender grievance process for a documented charge mismatch. Use RBI CMS only when the complaint and regulated entity meet the Ombudsman scheme conditions.
Choose EMI reduction or tenure reduction deliberately
A lower EMI improves monthly cash flow; a shorter tenure generally attacks future interest faster when the rate and payment amount are otherwise unchanged. Do not assume the lender will choose the option you prefer. Ask for both revised schedules where available and compare remaining interest, maturity date and monthly affordability.
The part-prepayment posted, but the EMI or tenure did not change as expected
First check
Confirm the payment was credited as principal part-prepayment rather than a future-instalment advance, and note the value date shown on the loan ledger.
What to do
Request the revised amortisation schedule and the product rule that determines EMI versus tenure recast. Compare principal immediately before and after the payment, then identify the first schedule line that does not reproduce.
Done when
The principal and revised schedule reflect the part-prepayment on the correct value date and the resulting EMI/tenure treatment matches the documented product rule or borrower instruction.
If it still fails
Raise the discrepancy with the lender using the payment reference, ledger and requested recast option. Keep normal undisputed instalments current while the schedule error is reviewed.
Protect the emergency buffer for a spreadsheet saving
Compare the interest avoided with the cash you would give up and any permitted charge. Investment returns are uncertain and may be taxed, so there is no universal “loan rate plus two percentage points” threshold. Preserve essential liquidity and clear materially higher-cost debt first where that fits your situation.
Keep proof that the payment reduced principal
Save the payment receipt, loan ledger and revised amortisation schedule. On the next statement, verify principal and interest are being calculated from the new balance. A successful payment screen is not enough if the lender booked it under a different transaction type.
Official sources
- RBI — Pre-payment Charges on Loans Directions, 2025 — effective scope and disclosure rules for full and partial pre-payment on loans sanctioned or renewed from 1 January 2026.
- RBI — Key Facts Statement for Loans & Advances — KFS/APR and charge-disclosure requirements for covered loans.
- RBI Complaint Management System — complaint route for eligible complaints after the required first complaint to the regulated entity.