RBI Rules out NBFCs from Charging Foreclosure Charge on Various Loans

Bringing greater flexibility to property loan borrowers, the Reserve Bank of India has mandated that Non-Banking Finance Companies to not levy any pre-payment or foreclosure charge on Term Loans from individual borrowers.

The central bank has said, “NBFCs shall not charge foreclosure charges/ pre-payment penalties on any floating rate term loans sanctioned for purposes other than business to individual borrowers, with or without co-obligants.”

A foreclosure charge is a penalty that is levied by the lenders on payment of the account before the stipulated tenor. The charge is an additional income for the lenders.

Who will Enjoy the New No-Repayment Charge RBI Notification?

• The loan is a term loan borrowed by an individual, and not a business.
• The term loan, or LAP is sanctioned by an NBFC.
• Your loan is running on a floating rate of interest and not a fixed one.
• The loan is not a business loan.

Also note that:

• All bank Home Loans on floating rates are barred from repayment charge.

The apex bank has also said that the notification has been shared with the financial institutions to reflect the change in lenders’ fee policies.

In 2014, the central bank had restricted commercial banks from charging foreclosure penalties for individual mortgage loans. However, banks do charge the prepayment fee on Personal Loans.