Whether it’s making the down payment on your car or managing unexpected medical bills, a personal loan is a sought-after way to access funds quickly. In case you’re planning to get credit via this mode, knowing about the RBI guidelines for personal loans is essential.
Through these guidelines, the RBI aims to promote fair practices, protect your rights and ensure ethical recovery practices by lenders. Knowing these guidelines is important to understand your rights and responsibilities.
RBI Guidelines for Financial Institutions
Here are some of the guidelines outlined by the RBI regarding personal loans to protect your interests:
- The loan application must include all the necessary information regarding the loan, including the interest rates and fees.
- The financial institution should verify the loan application promptly, within a specified period.
- Banks and other lending institutions should provide acknowledgement receipts for all loan applications.
- The institution offering the loan should contact you without any delay if they need any additional paperwork.
- The lender should communicate the reason for the rejection of loans of less than ₹2 lakhs in writing.
- The institution should inform you about any changes in the terms and conditions well in advance.
- The lending institution cannot discriminate against you on the basis of your caste, religion, sex or other reasons.
- The lender cannot resort to illegal or unethical ways to recover the borrowed amount.
- The lender must give adequate notice for cancellation, recall or request for quicker payments.
RBI Guidelines for Personal Loan Defaulters
The guidelines framed by the RBI in case you default on your personal loan are given below:
- A loan becomes delinquent if payment is late by a few days.
- Lenders allow a 10–15-day grace period for missed EMIs and send regular reminders during this time.
- After the grace period, the overdue period begins and the lender starts applying a late payment fee.
- If you consistently miss your EMI payments, the lender can file a case u/s 138 of the Negotiable Instruments Act of 1881.
- In genuine default cases, lenders should work with you to devise a suitable repayment plan.
- In case of regular non-payment, lenders will involve loan recovery agents by adhering to the RBI guidelines.
- Continued non-payment after the overdue period may result in the loan being declared a Non-Performing Asset (NPA).
- Lenders use various methods like restructuring the repayment plan, managing cash flow, etc., to recover NPAs.
RBI Guidelines for Personal Loan Interest Rate
Here are the guidelines set by the RBI on the interest rate of personal loans:
- Lenders must charge interest on loans and other types of credit in accordance with the guidelines issued by the RBI from time to time.
- The interest on loans at the specified rates must be charged on a monthly basis.
- Lenders must set the interest rates as per the Base Rate by including other customer-specific charges.
- The interest rates must be transparent, consistent and available for supervisory review.
- Each financial institution has one transparent Base Rate, which is determined using any benchmark.
- Lenders can offer loans on fixed or floating rates, even after implementing the Base Rate system.
Personal Loan Terms
One of the most significant benefits of these loans is that they don’t come with any restriction on the end usage. You can use the funds for anything, such as:
- Education
- Weddings
- Travel
- Medical treatment
- Home improvement
- Business
However, they do have other restrictions and policies. It is very important for you to read the terms and conditions of a loan before you sign the dotted line. Take a look at some common terms to be aware of.
Qualifying Criteria: Meeting the eligibility terms set by the lender is important to get quick approval on your loan application. Usually, lenders check the following:
- Your age
- Your income and employment stability
- Your credit score
- Your existing obligations
Repayment Conditions: While you can choose your tenure, these terms refer to the interest rate applicable to your loan. It also helps you understand whether you will be repaying on the basis of flexible or fixed rates as well as how you will repay:
- Bullet repayment
- Lump sum payment
- EMIs
Foreclosure and Prepayment Policies: This section of terms and conditions informs you about the rules related to making a part-prepayment or foreclosing the loan. This refers to costs related to these facilities.
Applicable Charges: Banks and NBFCs charge processing along with other fees on personal loans. Other applicable charges may include part-prepayment or foreclosure charges, statement charges, EMI bounce charges and more. Read the terms and conditions carefully to spot any hidden charges included in the loan application.
In conclusion, all RBI-registered lenders follow the mandatory regulations laid down by the central bank. Fibe follows these ethical lending practices and offers an Instant Cash Loan of up to ₹5 lakhs. Download the Fibe Personal Loan App to enjoy quick loan sanctions with a simple application process and minimal paperwork.
FAQs on RBI’s Personal Loans Guidelines
What are the RBI’s loan guidelines?
The Fair Lending Practices Code by the RBI aims to regulate the personal loan segment for transparent and ethical disbursal of loans. These guidelines include:
- Providing comprehensive loan applications with mention of key details about rates and charges
- Time-bound verification and disbursal of loans
- Conveying reasons for rejection of application
The lending policies of all banks and NBFCs need to adhere to the RBI’s personal loan guidelines.
What are the conditions to get a term loan?
Every financial institution works on its own set of terms and conditions based on RBI’s guidelines. These terms relate to:
- Loan interest rates and other charges
- Prepayment and foreclosure policies
- Eligibility criteria for borrowers
- Repayment tenures and plans
What are the latest regulations of the RBI related to personal loans?
Since November 2023, the RBI issued amended personal loan rules. The reformed guidelines raised the risk weights that banks and NBFCs need to set aside for every loan by 25% to 125% on retail personal loans.
What legal actions can be taken against defaults on personal loans?
In case you wilfully default on a personal loan, the issuer can take the following actions:
- Apply a late payment fee
- File a case u/s 138 of the Negotiable Instruments Act, 1881
- Involve loan recovery agents by adhering to the RBI guidelines
What are the updated RBI guidelines for EMIs?
The latest RBI guidelines regarding EMIs are as follows:
- You now have the option to switch from a floating to a fixed rate of interest.
- Lenders must offer you the choice to increase the EMI, extend the loan tenure or both.
