MUMBAI: RBI has barred pre-payment penalties on floating rate personal and small business loans, aiming to simplify lending and enabling switching lenders. The ban on prepayment charges applies on floating-rate personal loans, or on business loans given to individuals and micro or small enterprises regardless of how the loan is repaid or the source of repayment. For smaller lenders like small finance banks and rural banks, this waiver applies to loans up to Rs 50 lakh. Effective Jan 1, 2026, the RBI (pre-payment charges on loans) Directions, 2025 apply to all loans sanctioned or renewed thereafter by commercial banks, co-operative banks, NBFCs, and all-India financial institutions.There is no lock-in period, and even loans that began as fixed-rate but shifted to floating qualify if prepaid during the floating phase. Where charges are allowed (e.g., on fixed-rate loans), they must be disclosed in advance, proportional to the prepaid amount, and never imposed retrospectively.
