Personal loans are a popular choice for managing sudden financial needs due to their easy availability and quick disbursal. However, circumstances can change rapidly. The emergency you needed the funds for might resolve itself or get delayed. In such cases, you might find yourself needing to cancel the recently sanctioned loan. This process involves understanding a critical feature: the cooling-off period.
What is a Personal Loan Cooling-Off Period?
The cooling-off period, also referred to as the look-up period, is a specific timeframe granted by a lender after the loan amount is disbursed. During this window, a borrower can choose to cancel the loan agreement without incurring heavy penalties. This period is designed to protect consumers, allowing them to reconsider their decision. It's crucial to note that this period varies significantly between different banks and Non-Banking Financial Companies (NBFCs), typically ranging from 3 to 15 days from the date the loan amount is credited to your account.
Bank-Wise Cooling-Off Period and Cancellation Fees
Here is a detailed breakdown of the cooling-off period and associated cancellation charges for major lenders in India, based on their latest policies.
ICICI Bank
ICICI Bank offers a 15-day free look period from the date of personal loan disbursement. If you cancel the loan within this period, the cancellation charges are nil. However, the bank will not refund the processing fee. If you cancel the loan after the cooling-off period ends, a flat cancellation fee of Rs. 2,500 becomes applicable.
Kotak Mahindra Bank
Kotak Bank has different rules for digital and offline loans. For personal loans availed digitally, the cooling-off period is transaction date plus four days. Cancellation within this period attracts no charges. Post this period, the fee is Rs. 1,000 + GST or 1% of the principal outstanding + GST, whichever is higher. For loans taken through offline channels, there is no formal cooling-off period. Cancellation is only possible before the first EMI date, with the same fee structure as above applying.
HDFC Bank
Borrowers can cancel their HDFC Bank personal loan within the cooling-off period from the disbursement date. However, you will have to bear the interest charges from the disbursement date until the cancellation date. Importantly, processing fees, stamp duty, and other statutory charges are non-refundable. If you need to rebook the loan after cancellation, a charge of Rs. 1,000 + GST is levied.
IDFC FIRST Bank
For its FIRSTmoney Smart Personal Loan, the cooling-off period is 3 days. Cancelling the loan within these three days results in no cancellation charges.
Tata Capital
The look-up period here is 3 days from disbursement, with no prepayment penalty during this time. If cancelled after the period, the charges are 2% of the loan facility or Rs. 5,750, whichever is higher.
Other Notable Lenders
SMFG India Credit allows cancellation before the first EMI with a charge of Rs. 1,000 + GST. HDB Financial Services also has a cancellation fee of Rs. 1,000 + GST. Moneyview permits cancellation within a cool-off period of three working days after the amount is credited. Hero Fincorp states that cancellations done via their online app have no cancellation charges, but the processing fee (min 2.5% + GST) and any interest paid are non-refundable.
Step-by-Step Guide to Cancel Your Personal Loan
If you decide to proceed with cancellation, follow these steps to ensure a smooth process and minimise costs.
First, immediately check your loan agreement or contact your lender to confirm the exact duration of your cooling-off period. Determine if you are still within this window.
Next, understand the charges. While many lenders waive cancellation fees during the cooling-off period, processing fees are almost never refunded. If the cooling-off period has lapsed, check the applicable cancellation fee. It's worth contacting your bank or NBFC to politely request a waiver of these charges; sometimes they may agree, helping you save money.
Formally submit a loan cancellation request by filling out the bank's prescribed form. Repay the entire principal amount along with any accrued interest through the modes specified by the bank, such as cheque, online transfer, or cash deposit at a branch. Always obtain a written acknowledgement for your payment.
Once the bank receives the full amount, they will process your cancellation request. Ensure you receive a formal communication or a No Objection Certificate (NOC) confirming the loan closure for your records.
This article is based on information from personal finance writer Gopal Gidwani. It is intended for educational purposes to create awareness about credit products. Readers are advised to consult with certified financial experts before making any credit-related decisions, as loans carry risks like high interest and hidden charges.
