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Prepayment charges for early repayment of personal loan sometimes spoil your financial planning. Most people do not understand these hidden expenses while taking a loan and later fall into trouble. The new rules of RBI can bring a big change in the direction of reducing this burden.
New Delhi. The easy availability of personal loans in India has given people the facility to get instant money, but there are many important rules associated with them. One of these is prepayment penalty, which is imposed if you want to repay the loan before the end of its tenure. Generally this fee ranges from 1 percent to 5 percent of the outstanding amount. Many NBFCs – like Bajaj Finserv – charge prepayment charges as high as 4.72 per cent. Different banks decide these charges according to their terms and conditions, hence it is very important to understand these rules before taking the loan.
RBI’s new guideline: What can change?
RBI has recently made an important proposal under which prepayment and foreclosure charges on floating rate personal loans can be abolished. If this rule is implemented, lakhs of borrowers in individual and MSME sector can get relief. RBI had sought suggestions on this proposal from stakeholders. The aim of this step is to promote responsible lending and reduce additional financial burden on borrowers.
How will the borrower get the benefit?
Many people are afraid of repaying their loans early because of prepayment charges, whereas doing so can lead to huge savings in interest. If this fee is abolished in future, customers with floating rate loans will be able to repay the loan as per their wish without any additional cost. For this, it is important that the borrower reads the fine print of the loan agreement thoroughly and understands what charges his bank imposes.
How to avoid prepayment charges?
Many banks – like IDFC First Bank – do not charge any prepayment penalty on personal loans. Borrowers can avoid unnecessary expenses by choosing such options. Also, it is always wise to assess your financial situation, compare interest rates and seek guidance from an advisor before taking a loan. Because taking a loan is easy, but repaying it can sometimes prove to be difficult. Therefore, every borrower should proceed thoughtfully.
