In a major relief for loan borrowers, the Reserve Bank of India (RBI) has said that no prepayment charge will be levied on floating rate loans from January 1, 2026. That is, if you want to repay the loan before time, then no additional charge will have to be paid.
On which loans will this rule apply?
This new rule will apply only to those floating rate loans which will be approved or renewed on or after January 1, 2026.
The RBI has given clear instructions in this regard to all banks and regulated entities (REs) like non-banking financial companies (NBFCs):
If a person has been given a floating rate loan other than for business purpose (whether with or without co-obligant), then no prepayment charge will be levied on it.
Commercial banks have also been directed not to levy prepayment charges for floating rate loans given to individual businesses or micro and small enterprises (MSEs). However, some banks are outside this purview such as Small Finance Banks, Regional Rural Banks, Local Area Banks etc.
If these institutions give loans for loans up to Rs 50 lakh — such as Small Finance Banks, Regional Rural Banks, Co-operative Banks, NBFC-ML—then also prepayment charges will not be levied.
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Who will benefit from this?
This decision of the RBI will directly benefit home loan and floating rate loan borrowers.
In today’s time, most home loans are on floating rates, so this step is a matter of relief for crores of customers. People taking loans from the MSE sector will also benefit from this step.
One special thing is that this rule will apply even if you repay partial or full loan together, no matter from which source the money comes and there will be no minimum lock-in period.
According to Adhil Shetty, Cofounder & CEO, Bank Bazaar, “Lenders often didn’t pass on lower interest rates when rates dropped, especially in the pre-MCLR regime. Recognizing that floating loan rates fluctuate with market conditions throughout a loan’s life, the RBI scrapped prepayment charges in phases with a view to ensure fairness for borrowers.”
“Over the last 13 years, this rule,
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