RBI puts an end to pre-payment penalty on floating car and home loans

September 7, 2011

RBI’s new directive to put an end to pre-payment penalty charges in case of floating rate loans for homes and cars has been welcomed by lakhs of customers who want to pre-pay their loans, but are forced to pay pre-payment charges as high as 3% of the outstanding loan at the time of closure of their loan account.

The RBI at annual Banking Ombudsman Conference stated that “Banks must not recover pre-payment charges in floating rate loans.
Reating to the RBI’s notice, Jehangir Gai, joint secretary, Consumer Welfare Association in Mumbai stated that ‘this will encourage people to settle their outstanding loans faster’. He added that pre-payment charges are “usually a hidden charge and banks do not disclose it to the consumer. When the consumer goes to close a loan, banks spring this charge as a surprise.” Its a good decision by RBI.
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CA. Mukesh Saran
M.Com.,FCA, ISA-ICAI