Prepayment Penalties on Personal Loans: All You Need to Know

Personal Loan | Stashfin

Often known for their flexibility and accessibility, a personal loan easily lends a helping hand in covering various kinds of expenses, consolidating debts, or funding unexpected emergencies. Moreover, in recent times, it has become one of the most popular financial facilities.

However, hidden in the terms and conditions of some such loans lies a clause that borrowers might overlook. It is known and called as prepayment penalties, and you might be aware of it.  

What is a prepayment penalty? Why does it exist?

It is basically a fee amount charged by the lenders to borrowers who repay or partially repay their loan before the end of its tenure. This type of penalty is designed to compensate for the lender’s lost revenue amount, and the percentage here depends on the lender’s policy. 

On prepayment of such personal loan, lenders have the ability to calculate the penalty amount based on the remaining principal or even how much interest on personal loan remains once the loan has been paid off. 

However, we at the Stashfin offer the facility to make a prepayment without any kind of penalty. It is pertinent to mention here that an early loan payment would not reduce the fees as notified at the time of application. The habit of early payment is regarded as good behaviour and could help one improve the Stashfin Score.

What are its pros and cons for the borrower?


  • Potential for negotiation

One of the major pros is that the borrowers here have the chance to discuss and modify the terms of prepayment penalties or seek loans without such penalties. 

  • Potential for a lower rate of interest

Loans that come with prepayment penalties may offer reduced rates compared to those lacking penalties. 


  • Unforeseen costs

This can unexpectedly increase costs for borrowers who are planning to prepay it. 

  • Limitation on financial flexibility

They ultimately constrain the ability of the borrowers to manage their debts flexibility by penalizing early loan payoffs. 

How to avoid a prepayment penalty?

  • Check terms and conditions before commitment

Not only personal loan, but before signing any kind of loan agreement, it is essential to review the terms and conditions first. Look specifically for clauses related to prepayment penalties and take your time to understand how and when these might be applied. 

  • Negotiate whenever possible

The borrowers, in some cases, might have complete opportunity to negotiate the terms of the loan, including prepayment penalties. So, if, luckily, you are dealing directly with the lender, don’t hesitate at all to inquire about modifying or removing this clause. 

  • Prepayment Penalty Waivers

There are some lenders out there that the offer the option to waive the prepayment penalty under certain circumstances. So, explore whether the lender you opted for provides any such provisions. Understanding these waivers can provide opportunities to pay off the loan early without incurring additional fees. 

  • Opt for Stashfin

Apply for personal loan at Stashfin as we provide the option for early payment without the imposing any kind of financial penalties. However, it’s important to note that making an early payment won’t decrease the fees stated during the application process. Early repayment is seen as a positive practice and could positively impact one’s Stashfin Score.


All in all, understanding this clause is quite essential for informed and wise financial decisions. While they can easily impact the flexibility of the borrower and even add unexpected costs, awareness empowers individuals to navigate terms and conditions of loans wisely. 

Keep in mind that each loan varies in terms, and reading agreements diligently remains crucial. Therefore, by staying aware, you can mitigate the impact of such penalties.

Read more to know about the How to get Lowest Interest Rate on Personal Loan

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