The Reserve Bank of India (RBI) has proposed a major relief for borrowers by scrapping foreclosure charges on floating-rate loans taken by individuals for non-business purposes. The central bank, in a draft circular, also said that individuals and micro and small enterprises (MSEs) with business loans up to ₹7.5 crore should be allowed to prepay or foreclose their loans without penalties. However, the Tier-I and Tier-II urban cooperative banks and base-layer NBFCs are exempt from this rule.
Lenders will have to follow a board-approved policy for foreclosure charges, ensuring that any fees levied are based on the outstanding loan amount in term loans or the sanctioned limit for overdrafts and cash credit. Banks must also allow borrowers to prepay loans without imposing a minimum lock-in period.
The RBI has invited feedback from stakeholders until March 21, before finalising the guidelines.
What are Floating-Rate Loans?
Floating-rate loans have interest rates that change based on m…
Fixed vs Floating Interest Rate
A fixed interest rate means your loan’s interest stays the same throughout the tenure. This keeps your EMI constant, making budgeting easy. It’s a good choice if you want stability and don’t want to worry about market changes.
Fixed rates are usually 1.5% to 2% higher than floating rates. Even if market rates drop, your EMI won’t change, so you might end up paying more.
A floating interest rate changes based on market conditions and RBI policy decisions. It is l…
Conclusion
If you prefer predictable payments, a fixed rate is safer. If you are comfortable with some risk and expect rates to drop, a floating rate can save you money. Some banks also offer hybrid loans, which start with a fixed rate and later switch to floating.
For those looking for flexible and competitive loan options, Moneycontrol’s online lending platform provides access to personal loan offers of up to ₹50 lakhs from eight lenders. With interest rates starting at 10.5% per annum and a …
Source: www.moneycontrol.com