New Delhi2 days ago
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The Reserve Bank of India i.e. RBI has given relief to those taking loans. Actually, RBI has decided to abolish pre-payment charge on loans with floating interest rate. This new rule of the Reserve Bank will be applicable from 1 January 2026.
If a person pays a little or complete to his loan ahead of time, the bank used to charge this charge. The new rule will be mandatory for regulated institutions including all banks and non-banking finance companies (NBFC). This will directly benefit people taking crores of loans, especially home loans and MSE loans.
Who will benefit from RBI’s decision?
This decision will benefit those people who have taken a loan at a floating rate for non -commercial work. Even if a person has taken a loan alone or has taken a loan with co-options. No bank or NBFC will be able to charge pre-payment charge on all such loans.
Apart from this, if a person has taken a loan for business or a Micro and Small Enterprises (MSE) has taken a loan, Commercial Banks will not levy pre-payments. However, this discount will not apply to the institutions of certain categories.
Which institutions will not get benefit?
- Small finance bank
- Regional rural bank
- Local area bank
- Tier-4 Urban Co-operative Bank
- NBFC-Upper Layer (NBFC-Hul)
- All India Financial Institution
Relief on loans up to ₹ 50 lakh
If a person or MSE has got a loan of up to ₹ 50 lakh from the institutes given above, then pre-payment will not be charged on it. It includes Tier-3 Urban Co-operative Bank, State and Central Co-operative Bank and NBFC-Upper Layer (NBFC-ML).
Why did RBI take this decision?
RBI said that the investigation revealed that many regulated institutions were adopting separate policy for pre-payment charge. Due to this, there was a situation of confusion and dispute among the customers. Apart from this, some institutions were including such restructural clause in the loan agreement. So that customers cannot switch to a low interest rate option.
RBI said that this relief would not depend on the source of repayment of the loan. That is, whether it is a part payment of the loan or a full loan payment and whatever the source of the fund, there will be no charge. Also, any kind of lock-in period will not be mandatory.
What will be the benefit on fixed term loan?
According to the new rules, if the pre-payment charge is also imposed on the fixed term loan, then it should be based only on the pre-paid amount. At the same time, the rule is slightly different in cases of overdraft or cash credit. If the loan taker informs not to renewed prematurely and finishes the loan on the due date, no pre-payment charge will be levied.
Full details are necessary in Ke-Facts statement
The RBI has also directed that information about all the rules related to pre-payment charge should be given in the loan acceptance letter, contract and key-facts statement (KFS). If there is no charge in KFS already, it cannot be recovered later. This decision is considered a major improvement towards customers’ transparency and competition banking services.
RBI’s decision for customers means
This decision of RBI means that if you have taken a loan (such as a home loan) at a floating interest rate and you want to repay it a little or before the time, then the bank or financial company will not be able to charge any pre-payment penalty from you. The condition in this is that the loan is approved or renewed on 1 January 2026 or after that.
Banks or company used to charge this charge on customers so that customers could not switch to any other bank’s cheap loan or pre-payment. This gave them a chance to earn full interest, but now it will not happen.
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