Published on December 27, 2025 | By LoanPao Team
A personal loan provides quick funds for emergencies, but circumstances can change after approval and disbursement. This is where the **cooling-off period** (also called free look or look-up period) comes in – a short window allowing you to cancel the loan with minimal or no penalties.
In India, RBI mandates a cooling-off period especially for digital loans, but traditional bank loans often follow lender-specific policies. The period typically ranges from 1 to 15 days from disbursement. During this time, you can return the principal plus any proportionate interest without foreclosure charges.
What Happens During Cooling-Off Period?
Key points:
- No penalty for cancellation if done within the period.
- Repay full principal + interest for days used.
- Processing fees and stamp duty are usually non-refundable.
- No negative impact on CIBIL score if cancelled properly.
- After the period, it becomes prepayment/foreclosure with possible charges.
For digital loans, RBI requires at least 1 day (short-term) or 3 days (longer tenor) cooling-off.
Bank-Wise Cooling-Off Period & Cancellation Charges (December 2025)
| Bank/NBFC | Cooling-Off Period | Charges Within Period | Charges After Period |
|---|---|---|---|
| ICICI Bank | 15 days from disbursement | Nil cancellation fee | ₹2,500 |
| Kotak Mahindra Bank (Digital) | Transaction date + 4 days | Nil | Prepayment charges apply |
| Kotak Mahindra Bank (Offline) | No cooling-off; before first EMI | N/A | ₹1,000 + GST or 1% of principal + GST (higher) |
| HDFC Bank | Varies (check agreement) | Proportionate interest; processing fee non-refundable | Prepayment charges |
| SMFG India Credit | Before first EMI | Nil during period | 2% of facility or ₹5,750 (higher) |
| Bajaj Finance/Tata Capital | 3-14 days (varies) | Minimal/nil penalty | Foreclosure charges |
| General Banks (SBI, PNB etc.) | 7-14 days (digital) | Nil penalty; interest for days used | Prepayment charges (often nil for floating rate post-2026) |
Note: Policies vary; always check your loan agreement or Key Fact Statement (KFS). RBI bans foreclosure charges on floating-rate personal loans from 2026.
Steps to Cancel Personal Loan During Cooling-Off
- Review loan agreement for exact period and process.
- Contact lender immediately (branch/app/customer care).
- Submit written cancellation request.
- Repay principal + proportionate interest.
- Get confirmation letter and ensure no CIBIL impact.
Tips for Borrowers in 2025
- Always read KFS before accepting disbursement.
- Don't use funds if reconsidering.
- Compare multiple lenders via LoanPao for transparent terms.
- Check free CIBIL score before applying.
At LoanPao, we ensure full transparency and help you choose loans with favorable cancellation policies. Apply now for hassle-free personal loans!