Loan Pre-Payment Charges: Banking sector regulator RBI has given a big gift to those taking loans from banks, housing finance companies and NBFCs during the festive season. Keeping in mind the interests of loan customers, RBI has abolished foreclosure charges or pre-payment penalties on closure of floating rate term loans. . Banks or NBFCs will not be able to charge penalty or closure charges from loan taking customers for closing floating rate loans.
Ban on charging foreclosure charges by banks and NBFCs
Giving information about the decisions taken in the monetary policy meeting of RBI, Governor Shaktikanta Das said that in the last several years, the Reserve Bank has taken many steps to protect the interests of the customers. Under this, the bank or NBFC is not allowed to collect foreclosure charges or pre-payment penalty on closing the loan from the borrowers taking floating rate term loan under individuals category other than business.
Relief to micro and small enterprises
RBI Governor said that now it has been decided to further expand these gridlines. These guidelines will also be effective on loans given to Micro and Small Enterprises. This means that even on floating rate term loans given to micro and small enterprises, banks and NBFCs will not be able to charge foreclosure charges or pre-payment penalty in the coming days. Shaktikanta Das said, soon a draft circular will be issued for public consultation in this direction.
What is floating rate loan?
Banks decide loan interest rates in two ways. One would be a floating rate loan and the other would be a fixed rate loan. Floating rate loan is based on the benchmark rate. For example, whenever RBI changes its policy rates i.e. repo rate, banks also increase the interest rates on floating rate loans. And if RBI makes a cut then banks reduce the interest rates on loans. But the interest rates on fixed rate loans are stable. The interest rates fixed at the time of taking the loan remain the same till the loan expires.
Banks or NBFCs give home loans at floating rates. Whereas the interest rates on gold loan, car loan and education loan are fixed. Now RBI has decided that banks and NBFCs will not be able to charge foreclosure charges or pre-payment penalty for premature termination of floating rate term loans given to micro and small enterprises.
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