Answer: B. Payment before scheduled maturity Prepayment means paying part or all of a loan before its scheduled maturity.
How does partial prepayment differ from full prepayment?
A It pays only some balance
B It closes every account
C It skips all interest
D It changes the lender
Answer: A. It pays only some balance A partial prepayment reduces part of the outstanding balance; a full prepayment settles it.
What does full prepayment usually aim to do?
A Increase the original principal
B Delay every instalment
C Change borrower identity
D Settle outstanding loan balance
Answer: D. Settle outstanding loan balance A full prepayment pays the amount required to settle the loan under the lender’s payoff calculation.
What can a partial prepayment reduce?
A The original loan agreement
B The borrower’s PAN
C Outstanding principal
D The lender’s benchmark
Answer: C. Outstanding principal A partial prepayment can reduce the amount of principal still owed.
Why might a borrower consider prepaying?
A Guarantee a credit score
B Reduce future interest cost
C Erase all loan records
D Change the loan purpose
Answer: B. Reduce future interest cost Reducing principal earlier may lower future interest, subject to the loan method and any charges.
Before prepaying, which costs should be checked?
A Applicable charges and accrued interest
B Only the lender’s logo
C Only the app color
D Only the branch address
Answer: A. Applicable charges and accrued interest The payoff amount may include outstanding principal, accrued interest, and any disclosed applicable charges.
Which RBI directions began applying to loans sanctioned or renewed from January 2026?
A Digital Lending Directions 2021
B Free Report Directions 2017
C KFS Directions 2020
D Pre-payment Charges Directions 2025
Answer: D. Pre-payment Charges Directions 2025 RBI’s Pre-payment Charges Directions, 2025 apply to loans and advances sanctioned or renewed on or after January 1, 2026.
Which institutions are covered by RBI’s 2025 prepayment directions?
A Every payment app
B Only credit bureaus
C Covered banks, co-ops, NBFCs, AIFIs
D Only vehicle dealers
Answer: C. Covered banks, co-ops, NBFCs, AIFIs The directions cover commercial banks other than payments banks, co-operative banks, NBFCs, and All India Financial Institutions.
For covered floating-rate non-business loans to individuals, what charge is prohibited?
A Regular interest
B Prepayment charges
C Scheduled principal
D Document verification
Answer: B. Prepayment charges RBI bars prepayment charges on covered floating-rate loans to individuals for non-business purposes.
Does that individual-loan rule change when there is a co-obligant?
A No, co-obligants are covered
B Yes, charges always apply
C Yes, the loan is cancelled
D No, repayment is waived
Answer: A. No, co-obligants are covered RBI’s rule covers individuals with or without co-obligants.
Which payment types are covered by the no-charge rule?
A Only overdue payment
B Only the final EMI
C Only interest payment
D Part or full prepayment
Answer: D. Part or full prepayment The directions apply whether a qualifying loan is prepaid in part or in full.
Does the covered no-charge rule depend on where prepayment funds came from?
A Yes, only salary funds qualify
B Yes, only savings qualify
C Funding source does not matter
D No, only refinance qualifies
Answer: C. Funding source does not matter For covered cases, the rule applies irrespective of the source of funds used for prepayment.
Is a minimum lock-in period allowed for covered prepayments?
A A five-year lock-in
B No minimum lock-in
C A two-year lock-in
D A one-month lock-in
Answer: B. No minimum lock-in The directions say the qualifying no-charge rule applies without a minimum lock-in period.
For a dual-rate loan, which rate status determines the rule?
A Rate at prepayment time
B Rate at application only
C Rate on the first EMI
D Borrower’s credit score
Answer: A. Rate at prepayment time For dual or special-rate loans, applicability depends on whether the loan is floating-rate when it is prepaid.
Which business-purpose loans also have a no-charge rule?
A Every company loan
B Every overdraft account
C All personal credit cards
D Certain individual and MSE loans
Answer: D. Certain individual and MSE loans RBI lists qualifying business loans to individuals and MSEs, with lender-category and amount conditions.
Why should MSE borrowers check lender category and sanctioned limit?
A Every lender has identical rules
B Limits never affect charges
C Rules differ by category
D MSE loans cannot be prepaid
Answer: C. Rules differ by category The business-loan provisions vary by regulated-entity category and, for some lenders, sanctioned amount.
When must a regulated entity waive prepayment charges?
A Whenever EMI is late
B When it initiates prepayment
C When a borrower changes address
D After every rate reset
Answer: B. When it initiates prepayment RBI directions prohibit charges where the regulated entity itself effects the prepayment.
Where should applicable prepayment charges be disclosed?
A Sanction letter and agreement
B A sales poster only
C An unrelated email
D A social media page
Answer: A. Sanction letter and agreement The directions require the applicability of prepayment charges to be clearly disclosed in the sanction letter and loan agreement.
For loans requiring a KFS, where should prepayment charges also appear?
A Credit bureau report
B Property sale deed
C Bank passbook cover
D Key Facts Statement
Answer: D. Key Facts Statement RBI says prepayment charges should also be stated in the KFS where one is required.
Can a lender collect an undisclosed prepayment charge under these directions?
A Yes, without notice
B Yes, after loan closure
C No, disclosure is required
D No, every loan is free
Answer: C. No, disclosure is required The directions prohibit charging prepayment fees that were not disclosed as required.
Can a previously waived charge be added later at prepayment?
A Yes, whenever rates rise
B No, not retrospectively
C Yes, if the borrower asks
D No, prepayment is banned
Answer: B. No, not retrospectively RBI says a regulated entity cannot levy retrospectively fees or charges it had earlier waived.
For a term loan where charges are permitted, what amount should they be based on?
A Amount being prepaid
B Original sanctioned amount always
C Borrower’s annual income
D Collateral market value
Answer: A. Amount being prepaid RBI directs that any permitted term-loan prepayment charge be based on the amount being prepaid.
For cash-credit or overdraft closure before due date, what is the charge cap basis?
A Borrower’s monthly salary
B Original business revenue
C Collateral insurance value
D Not above sanctioned limit
Answer: D. Not above sanctioned limit For early closure of cash-credit or overdraft facilities, charges cannot be levied on an amount exceeding the sanctioned limit.
When can a borrower close a cash-credit facility on its due date without prepayment charges?
A After missing all payments
B Without contacting the lender
C After timely non-renewal notice
D Only after a new loan
Answer: C. After timely non-renewal notice RBI provides that no prepayment charges apply when the borrower gives notice of non-renewal as required and the facility closes on its due date.
What should a borrower request before making a full prepayment?
A A new credit card
B Written payoff amount
C A property brochure
D A blank application
Answer: B. Written payoff amount A dated payoff statement clarifies the amount required to settle the account.
Why can a payoff amount change with time?
A Interest accrues between dates
B The loan amount always doubles
C The borrower changes identity
D The account loses its history
Answer: A. Interest accrues between dates Interest may accrue up to the settlement date, so a payoff quote is date-specific.
After partial prepayment, what should be checked?
A The lender’s branch color
B A different borrower’s loan
C The advertisement headline
D Updated balance and schedule
Answer: D. Updated balance and schedule The borrower should verify how the payment affected outstanding principal and future instalments.
How might a lender apply a partial prepayment?
A Erase the credit report
B Increase original principal
C Reduce EMI or shorten tenure
D Cancel the agreement automatically
Answer: C. Reduce EMI or shorten tenure Depending on the product and borrower’s choice, the lender may lower EMI, shorten tenure, or apply another disclosed method.
What should be compared before choosing lower EMI after prepayment?
A Only a new bank logo
B Future interest and remaining tenure
C Only the loan’s age
D Only the first payment
Answer: B. Future interest and remaining tenure Lower EMI and shorter tenure can have different effects on future interest and repayment duration.
Can prepayment charges be confused with regular loan interest?
A No, they are separate
B Yes, they are identical
C Yes, both mean principal
D No, interest is never charged
Answer: A. No, they are separate Prepayment charges are separate from interest already accrued under the loan terms.
Does prepayment automatically forgive any unpaid principal?
A Yes, all principal disappears
B Yes, debt becomes a grant
C No, the lender pays it
D No, the balance remains due
Answer: D. No, the balance remains due Prepayment settles only the amount paid; any remaining principal continues to be owed.
Which date matters for checking a payoff quote?
A Loan application date only
B Borrower’s birthday
C Expected payment date
D Branch opening date
Answer: C. Expected payment date The expected settlement date affects accrued interest and therefore the amount quoted.
What should be reviewed for a loan sanctioned before January 2026?
A Assume 2025 directions apply
B Applicable rules and contract
C Ignore all prior disclosures
D Treat charges as always zero
Answer: B. Applicable rules and contract The 2025 directions specifically cover loans sanctioned or renewed on or after January 1, 2026; older loans require review under their applicable rules and terms.
Does the 2026 rule make every type of loan prepayment charge-free?
A No, scope is specific
B Yes, all loans are free
C Yes, every fixed-rate loan
D Prepayment is forbidden
Answer: A. No, scope is specific The directions prohibit charges for specified categories; other cases follow the regulated entity’s approved policy and applicable rules.
What happens to prepayment rules for a mixed fixed-floating loan?
A Use only the first-year rate
B Ignore the loan contract
C Always treat it as fixed
D Rate at prepayment
Answer: D. Rate at prepayment RBI directs that applicability for a dual or special-rate loan depends on whether it is floating when prepayment occurs.
Which statement about refinancing funds is accurate for covered cases?
A Only own funds qualify
B Only family funds qualify
C Funding source does not matter
D Refinancing is always prohibited
Answer: C. Funding source does not matter The no-charge rule for covered categories applies irrespective of the source of prepayment funds.
When may approved-policy charges apply under the 2025 directions?
A To every qualifying borrower
B Outside listed no-charge categories
C Only when lender asks
D Never in any case
Answer: B. Outside listed no-charge categories For cases outside the specified categories, any prepayment charge follows the regulated entity’s approved policy and applicable directions.
What should a borrower do if a prepayment fee is unexpected?
A Ask for written basis
B Ignore the statement
C Pay an unknown agent
D Close the bank account
Answer: A. Ask for written basis A borrower can ask the lender to identify the contractual disclosure and rule supporting the charge.
What should a borrower compare before using savings to prepay?
A Only the loan’s title
B Only the lender’s logo
C Only the app rating
D Interest savings and liquidity
Answer: D. Interest savings and liquidity Compare expected savings with the need to retain funds for planned expenses and emergencies.
Why can reducing principal earlier lower total interest?
A It changes the borrower’s PAN
B It removes the loan agreement
C Less balance accrues interest
D It sets a lower benchmark
Answer: C. Less balance accrues interest With a reducing-balance method, lowering principal can reduce the amount on which future interest is calculated.
Can a lender add a fee that it waived earlier when prepayment occurs?
A Yes, if the rate changed
B No, retrospective fees are barred
C Yes, without disclosure
D No, unless the borrower asks
Answer: B. No, retrospective fees are barred RBI directions bar retrospective collection of charges previously waived by the regulated entity.
What is a useful record after full prepayment?
A Settlement confirmation
B A new application form
C An unsigned rate quote
D A blank payment mandate
Answer: A. Settlement confirmation The borrower should obtain confirmation that the loan has been settled and the account closed.
For a secured loan, what follows after full settlement?
A Automatic fresh sanction
B Higher interest rate
C A new credit enquiry
D Security release process
Answer: D. Security release process After settlement, the borrower should follow the lender’s disclosed process for release of collateral and related documents.
Which term describes paying the entire outstanding amount early?
A Loan processing
B Interest reset
C Foreclosure or full prepayment
D Credit enquiry
Answer: C. Foreclosure or full prepayment Full early settlement is commonly described as foreclosure or full prepayment.
What should be checked if a lender initiated a loan transfer?
A The borrower’s credit score only
B Whether any charge is imposed
C The website background color
D The old application password
Answer: B. Whether any charge is imposed RBI directions prohibit charges where the prepayment is effected at the regulated entity’s instance.
What can make a prepayment financially useful?
A Lower future interest cost
B Guaranteed higher score
C Automatic loan approval
D Removal of all records
Answer: A. Lower future interest cost Prepayment may reduce future interest but the benefit depends on the balance, time remaining, method, and charges.
Before paying an extra amount, what must the borrower specify?
A Treat as new borrowing
B Send it to an agent
C Change the payment date
D Apply it as prepayment
Answer: D. Apply it as prepayment The borrower should make clear how an extra payment is intended to be applied and confirm lender processing.
How should borrowers verify a completed part-prepayment?
A Use a social media post
B Ask an unrelated branch
C Check revised loan statement
D Rely on memory
Answer: C. Check revised loan statement A revised statement helps confirm the payment was credited and the balance updated.
What best summarizes safe prepayment planning?
A Pay without reading terms
B Check scope, quote, and schedule
C Assume every fee is banned
D Use an unverified transfer link
Answer: B. Check scope, quote, and schedule Reviewing applicable rules, the payoff quote, and revised schedule helps prevent avoidable errors.
How can the likely financial benefit of an early payment be estimated?
A Compare interest saved and charges
B Compare branch colors
C Ignore remaining balance
D Use advertised rate alone
Answer: A. Compare interest saved and charges Compare estimated interest avoided over the remaining term with applicable prepayment charges and the dated payoff amount.