Have you already taken a personal loan in India? Then, you should know the basics of prepayment penalties attached to it. Most people in our country have little knowledge about these loans and the charges RBI can impose in certain matters.
In this blog, we will try to find the critical aspects that are influencing the Indian loan market, things we need to learn about before taking a personal loan, and more. People who are not aware of these aspects need to talk with a loan agent for help.
When you have pending loan payments, the banks will charge penalties or further interest on the principal amount. The overall popularity of personal loans has become quite high in the last few years due to the flexibility it offers. We hope you will learn every bit of information about prepayment penalties after reading this blog.
It is Time To Learn The Basics
Suppose you are thinking of repaying your loan amount before the term ends. According to the law, there is a fee that you have to pay in order to settle everything. When you settle your loan amount in advance, the borrower loses money in terms of interest rates.
Paying the prepayment penalty amounts will help them minimize the loss and run the payment procedure smoothly. If there is no penalty involved, more people will settle their loan amounts in advance, which is not good for the borrowers.
When Would You Receive A Penalty?
Definite rules regarding prepayment penalties can vary between different loan companies. Common knowledge is that if you try to pay all of your loan amount before the fixed tenure, the lending company might impose a penalty on him.
Whenever you are taking a personal loan from a bank or a financial company, try to learn everything about loan repayment and advance payment to avoid any future complications.
RBI Guidelines Regarding Prepayment
As there is miscommunication regarding loan prepayment and penalties for them in public, RBI made the rules clear last year. It says that there will be penalties on foreclosures, but the banks can’t charge floating loan rates during penalty imposement.
The prepayment penalty will be there only if the person has chosen a fixed interest rate. It is worth noting that there are several important aspects regarding penalties, which we will try to discuss later in this blog. Look for an experienced financial person to get some help during an emergency.
Important Aspects Regarding Prepayment Penalties
We are already done with the basics of loan prepayment penalties. Here are some of the most important aspects that we must know about-
- Before taking a loan, when you are signing the agreement, read everything carefully. There must be proper information about loan prepayment penalty terms. If you do not fully agree with their terms, you can request a change.
- The rate of the penalty will vary from bank to bank. Some banks don’t even charge any penalty and encourage people to settle their loans as soon as possible. Look for different options and compare their terms before choosing the right one.
- The calculation method that will decide the amount of the penalty is different for each bank. In most cases, it will depend on your outstanding loan balance. Take some time to understand the method of calculation to make better financial decisions.
- If you are serious about knowing the rate of interest regarding prepayment, here are some of the rates you need to know. Generally, the rate can vary from 2%-3%. Banks like HDFC, SBI, and Kotak Mahindra impose 3% on the principal amount. A few banks, like Canara Bank and Axis, offer a 2% rule.
- Without checking the prepayment charges, we shouldn’t get any loan.
- Every loan is different. The penalty amount of prepayment can vary for each loan option.
After knowing these factors, you can easily choose the best loan options and get all the benefits. Make sure to consult with DSA partners to have better results.
Is It Possible To Avoid These Penalties?
The following tips will help you avoid possible penalties-
- There are specific loan options that can help you avoid penalties.
- Choose your tenure carefully.
- Consult with experts for better results.
Make sure to learn all the important aspects to have better results.
