If you have already taken a personal loan or are about to take one, then there is a latest update for you. The Reserve Bank of India (RBI) has directed banks to give borrowers the option to convert floating rates on personal loans into fixed rates at the time of rescheduling interest rates. This means that whenever there is an increase in the interest rate on personal loan, they will give you the opportunity to switch the loan from floating rate to fixed rate or vice versa. According to Livemint news, RBI has recently issued a set of frequently asked questions (FAQs) regarding the circular on restructuring floating interest rates on EMI based personal loans.
Consider this option
The borrower can choose to increase the EMI amount or extend the loan tenure. In this way he can maintain the EMI the same or do a combination of both the options. Secondly, what the bank should offer to the borrower is to allow him to switch to a fixed interest rate for the remaining tenure. Another option the borrower has is to prepay partially or fully at any time during the loan tenure.
Mandatory Offering Instructions
According to the news, RBI has directed banks to mandatorily offer fixed interest rate products in all EMI based personal loan categories. Banks have also been asked to give borrowers (who had earlier opted for the floating interest rate) the option to switch to a fixed rate at the time of the interest rate reset. However, RBI has made it clear that the bank may impose applicable charges for switching the loan from floating to fixed rate or vice versa.
what is personal loan
Personal loan is a type of credit that allows individuals to borrow a lump sum amount for various personal expenses, such as home renovation, medical bills, etc. Borrowers agree to repay the loan in fixed monthly installments over a fixed period of time, usually one to five years. The interest rate on personal loans usually depends on the policies of the financial institution, the borrower’s credit score, income and overall financial profile.
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