Can I prepay car loan with no penalty?


Can I prepay car loan with no penalty?


The shrinking resale value of old cars may mean you may want to sell off your car before the loan tenure ends or upgrade to a new car. Unfortunately banks know this fact and have a prepayment penalty charge if you want to pay off your loan before its tenure period. There are some banks like Dena Bank offering zero penalties for car loan prepayment. So check with your bank if it offers a zero penalty for car loan prepayment before finalizing your loan.


Hi Reba,

There are several reasons why people prefer to prepay their Car Loan before completion of the loan tenure. The most common reason is the different benefits associated with prepaying a Car Loan, which makes this option sound logical to most customers.

Most banks discourage prepayment as it would deprive them of earnings in terms of interest on the Car Loan, which usually goes up to 14% or more. Generally, these are the prepayment conditions that most banks usually put forth (these vary from bank to bank):

For fixed interest Car Loans, there is a prepayment penalty levied, which is usually in the range of 3-5% for private financiers and 2% for public sector banks. Additionally, service taxes are also applicable on such payments.

For floating rate Car Loans, there are no prepayment penalties as per directives set by the RBI. So, one can prepay and migrate the loan to a bank that offers a lower rate of interest as compared to the existing loan.

Most banks, however, do not permit prepayment during the first six months of the repayment tenure.
Prepaying your outstanding Car Loan when you have the means to do so is a smart financial move. However, pay attention to all the charges that may be involved and make sure you are aware of all relevant details regarding the prepayment. Good luck!

Team BB