New Delhi: The Reserve Bank of India (RBI) has provided significant relief to loan borrowers. According to the new directive, if a borrower repays their loan before the scheduled term, the bank or financial institution will not be allowed to impose any prepayment charges.
RBI has abolished prepayment charges on loans with floating interest rates. This new rule will come into effect from January 1, 2026, and will be applicable to all loans sanctioned or renewed on or after that date.
Currently, banks and financial institutions often impose charges if a person repays their loan—fully or partially—before the due period. The new guidelines will apply to all banks and non-banking financial companies (NBFCs) regulated by the RBI.
This decision will bring major relief to crores of customers, especially those with home loans or MSME loans.
If any individual or group of individuals takes a non-commercial loan at a floating rate, then starting January 1, 2026, they will not have to pay any prepayment charges. Even those who have already taken such loans will benefit from this policy.
Similarly, for commercial and MSME loans, commercial banks will not be permitted to levy prepayment charges.
However, these rules will not be applicable to:
Small Finance Banks
Regional Rural Banks
Local Area Banks
Tier 4 Urban Cooperative Banks
NBFCs in the Upper Layer
All India Financial Institutions
If an individual under the MSME category has taken a loan up to ₹50 lakh, no prepayment charges will be applied. This includes:
Tier 3 Urban Cooperative Banks
State and Central Cooperative Banks
NBFCs in the Upper Layer
RBI took this step as currently different banks and financial institutions follow varied policies regarding prepayment charges, leading to confusion and unfair practices.
Whether a loan is fully or partially prepaid, no charges will apply, and no lock-in period will be mandatory, as clarified by the RBI.