What a cooling-off period means
A cooling-off period is a short window after you take a digital loan when you can change your mind. You leave the loan by paying back the principal (the amount you borrowed) and the cost for the days you had the money. There is no penalty for leaving.
A digital loan is one you apply for and get through an app or website. RBI’s Digital Lending Directions, 2025 say every such loan must have a cooling-off period of at least 1 day. The lender can give you more. Your KFS (Key Facts Statement, the short summary of the loan you get before you sign) shows how long yours is.
What you repay if you leave
The rules let you exit by paying the principal plus the APR for the days you used the money. APR is the yearly cost of a loan, with interest and fees together. The lender may keep a reasonable one-time processing fee, but only if the KFS says so.
Farhan, 24, takes a ₹20,000 loan in an app. The processing fee is ₹590, taken out before payout, so ₹19,410 reaches his account. The APR is 24% a year, and his KFS gives a 3-day cooling-off period.
The next day his father offers to lend him the money. On day 2, Farhan decides to leave the loan.
| ₹ | |
|---|---|
| Principal to repay | 20,000 |
| Cost for 2 days at 24% a year (20,000 × 24% × 2 ÷ 365) | 26 |
| Total to repay | 20,026 |
| Fee kept by the lender (as the KFS says) | 590 |
| Cost of changing his mind (20,026 − 19,410) | 616 |
If he had kept the loan, he would pay the full interest for its whole term. Leaving early cost him the fee and ₹26.
Fictional example. The rate and fee are illustrative, not an offer. We used simple daily interest to estimate the cost for 2 days; the lender’s own method may give a slightly different figure. Calculated by Paisavy and rounded to the nearest rupee.
Where you see it
- The KFS, in a line such as “cooling-off / look-up period”.
- The loan agreement and the app’s loan details screen.
- Pay Later and BNPL (buy now, pay later) credit taken through an app, because these are digital loans too.
What it is not
It is not the same as the KFS validity period. That is the time before you sign, when the offer must stay open (at least 3 working days for most loans). The cooling-off period comes after you take the loan.
It does not mean “free”. You still repay the principal and a small cost, and you may lose a disclosed processing fee.
It is also different from the waiting time some lenders apply after you settle a loan for less than you owe. That waiting time is about when the same lender may lend to you again.
The rule we describe is for digital loans. For a loan taken at a branch, check your KFS and agreement to see whether a similar window exists.
What to do
- Before you accept, find the cooling-off line in the KFS and note the last date.
- If you want to leave, contact the lender inside the window, in writing through the app or by email, and keep a screenshot.
- Repay to the lender’s own account, never to a personal UPI ID.
- Ask for written confirmation that the loan is closed.
If the lender refuses or keeps charges that are not in the KFS, complain to the grievance officer named in the KFS. Our guide on checking a lender or loan app explains the next steps.