If you have taken a loan for your business and want to repay it early, you can now do so without paying any extra charges.
RBI has announced that for floating rate business loans repaid before January 1, 2026, banks and financial companies cannot charge pre-payment fees.
This rule will apply to all commercial banks, financial institutions, and Non-Banking Financial Companies (NBFCs). They must follow this directive from the RBI.
Why Did RBI Make This Move?
RBI observed that many lenders were charging pre-payment penalties at their own discretion, which created confusion and inconvenience for borrowers.
In some cases, strict terms were added to loan agreements that prevented borrowers from switching to better loan options with lower interest rates.
With this new rule, business owners will now have the freedom to repay early or shift to lower-interest loans without being penalized.
Who Benefits from This Decision?
All business loan borrowers will benefit, especially small traders and MSMEs. They will no longer be caught in the trap of extra charges for early repayment.
This move is also expected to create competition among lenders and bring down loan rates for businesses.
When Are Pre-Payment Charges Allowed?
According to the RBI, pre-payment charges can only be applied if clearly mentioned in the loan agreement.
If there is no clause about pre-payment charges, then no lender can impose them. This decision will give more clarity to borrowers and help them make better financial decisions for their business.
