These new guidelines are especially for the Micro and Small Enterprises (MSEs) and individual borrowers, who face restrictions when trying to close or switch loans.
Nidhi | Jul 4, 2025 |
RBI Issues Guideline on Pre-payment Charges on Loans to Make Prepayment Easier
The Reserve Bank of India (RBI) is introducing rules called the Pre-payment Charges on Loans Directions, 2025, to stop unfair penalties charged by banks and financial institutions when borrowers repay their loans early. Prepayment charges, also known as prepayment penalties, are fees that a lender may charge to their borrower for paying off a loan early. From January 2026, the RBI is making it easier and cheaper to prepay loans.
These new guidelines are especially for the Micro and Small Enterprises (MSEs) and individual borrowers, who face hidden charges, unclear terms, or restrictions when trying to close or switch loans.
These guidelines are for all commercial banks (except payments banks), Co-operative banks, Non-Banking Financial Companies (NBFCs), and all India Financial Institutions.
RBI found that many Regulated Entities (REs) were charging different fees when borrowers wanted to repay their loan early, called pre-payment of the loan. Some REs also added restrictions, which made it difficult for borrowers to switch to another lender.
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