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How to Cancel a Digital Loan in the Cooling Off Period

If you took an app based digital loan and regret it, the Reserve Bank rules give you a cooling off period in which you can exit the loan by repaying only the principal and the interest for the days you held the money, with no penalty. The one time processing fee may still be kept by the lender if it was disclosed upfront.

Quick answer: Under the RBI Digital Lending Directions, every digital loan must offer a cooling off, or look up, period during which you can exit by paying back the principal plus the proportionate annual percentage rate for that short period, without any penalty. Each lender sets the exact length in its board approved policy, but it cannot be less than one day. A processing fee disclosed in your Key Fact Statement can be retained.

What your exit right actually covers

The cooling off period is a short window right after disbursal. It is meant for exactly the situation where you take an instant loan and change your mind.

  • You repay principal plus proportionate interest only. You return the loan amount and the interest calculated for the few days you held it, based on the annual percentage rate, or APR, in your Key Fact Statement.
  • No prepayment or foreclosure penalty applies. Exiting inside the cooling off period cannot attract a penal charge for early exit.
  • A disclosed processing fee can be kept. The lender may retain a one time processing fee if it was clearly shown in your Key Fact Statement before you borrowed.

Where this right comes from

The rule book is the Reserve Bank of India (Digital Lending) Directions, 2025, notification RBI/2025-26/36, issued on 8 May 2025. It consolidates and expands the earlier digital lending guidelines that the RBI first issued in 2022, so the cooling off idea is not brand new, but the 2025 Directions bring it together and tighten it.

The Directions require every regulated lender, and the loan service providers and lending apps working for it, to give the borrower an explicit option to exit a digital loan during an initial cooling off period. Each lender fixes the exact length through its board approved policy, and that length cannot be less than one day.

Exit in five steps

Act quickly, because the window is short. Move as soon as you decide.

  1. Open your Key Fact Statement. It states your cooling off period length, the APR, and the processing fee. This is the document the lender must give you at sanction.
  2. Calculate what you owe. That is the full principal plus interest at the APR for the days since disbursal, plus any disclosed processing fee. There is no penalty on top.
  3. Tell the lender in writing that you are exiting in the cooling off period. Use the app support channel and email, and keep a copy. State the loan account number and the date.
  4. Pay the amount and get a closure confirmation. Ask for a written statement that the loan is closed and the account shows a nil balance.
  5. Check your credit report a few weeks later. Confirm the loan does not show as running or overdue. If it does, raise a dispute using the credit report dispute process.

If the lender resists or the app is unregistered

Some borrowers meet delay or pressure when they try to exit. Know your footing.

  • Confirm the lender is RBI regulated. The cooling off right applies to loans of regulated entities and their apps. If you are unsure the app is legitimate, check first using whether a loan app is RBI registered.
  • Escalate through the grievance officer. Every regulated lender and lending app must name a grievance redressal officer. Complain there in writing first.
  • Then the RBI ombudsman. If the grievance is not resolved in 30 days, you can approach the Reserve Bank ombudsman for the lender.
  • Recovery harassment is separate. Abusive recovery is not allowed. See the limits on loan recovery agents. To frame a strong written complaint to a regulator, The RTI Playbook is a useful companion.

Real-life example. Kashvi Pathak took a ₹30,000 loan on a lending app late one evening for a purchase she then decided against. Her Key Fact Statement showed a cooling off period and an APR of 24 percent. The next morning she messaged support and emailed the lender that she was exiting within the cooling off period. She repaid ₹30,000 plus about ₹20 as one day of proportionate interest, and the lender retained the small processing fee that had been disclosed. No penalty was charged, and a week later her credit report showed the loan closed with a nil balance.

Frequently asked questions

How long is the cooling off period for a digital loan?

Each regulated lender sets it in its board approved policy, and it cannot be less than one day. Check the exact length in your Key Fact Statement.

What do I have to pay to exit in the cooling off period?

The principal plus interest at the annual percentage rate for the days you held the money. No penalty applies. A one time processing fee can be kept only if it was disclosed in your Key Fact Statement.

Which rule gives me this right?

The Reserve Bank of India (Digital Lending) Directions, 2025, notification RBI/2025-26/36 dated 8 May 2025, which consolidate and expand the earlier 2022 digital lending guidelines.

Can the lender charge a foreclosure or prepayment penalty if I exit early?

No. Exiting within the cooling off period cannot attract an early exit or foreclosure penalty. You only pay principal and proportionate interest, plus any disclosed processing fee.

What is a Key Fact Statement?

It is the standardised summary a digital lender must give you before you borrow, showing the APR, all charges, the cooling off period, and the recovery details. Keep it, because your exit calculation is based on it.

The app is refusing to let me exit. What can I do?

Complain in writing to the lender grievance officer, and if it is not resolved in 30 days, approach the RBI ombudsman. First confirm the app belongs to a regulated lender, because unregistered apps are a separate risk.

Does this apply to loans from any app?

It applies to digital loans of RBI regulated entities and the apps working for them. An app that is not linked to a regulated lender may be operating illegally, which is why you should verify it before borrowing.

Will exiting in the cooling off period hurt my credit score?

Repaying in full within the window and getting a closure confirmation should leave a clean record. Check your credit report afterwards and dispute any wrong running or overdue entry.

Sources

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