Are you on the list of people paying EMIs? Are you facing issues like sudden increases in EMIs or automatic extensions of loan tenures without prior information? The RBI has stepped in to address these problems faced by borrowers in terms of monthly instalment payments. From now on, lenders will no longer be allowed to handle EMI matters arbitrarily.
The Reserve Bank of India has released new guidelines to regulate this issue.
The Reserve Bank of India is bringing a series of good news for borrowers in the new financial year. There are widespread reports that key repo rates will soon be reduced again. In the meantime, the RBI has given a big relief to those paying EMIs. From now on, lenders will no longer be allowed to arbitrarily increase EMIs or extend loan tenures without prior notice. The RBI has put a brake on such decisions. The new regulations aim to increase transparency, improve borrower control, and reduce unexpected charges on home, car, and personal loans, especially concerning monthly instalment payments.
What changes have been made in EMI regulations?
Loan payers have been facing numerous issues, such as sudden increases in EMIs, automatic extensions of loan tenures, and unclear loan terms related to EMI payments. The new regulations introduced by the RBI aim to provide relief to borrowers from these problems. According to the new guidelines by the Reserve Bank of India, the changes are as follows:
- Lenders must obtain the loan payer’s consent before extending the loan tenure.
- Additionally, if there are any changes in the EMI or loan tenure due to an increase in interest rates, they must be clearly communicated in advance.
- This will ensure that borrowers receive a full disclosure of loan details, including key facts, before they take out a loan.
- EMIs cannot be automatically increased or loan tenures extended without the borrower’s consent.
- Loan statements must clearly separate the interest and principal portions.
How beneficial are these changes?
The answer to the question of how these new changes will benefit loan borrowers is that they will protect them from unfair and arbitrary changes during the loan repayment process. Due to the RBI’s new guidelines, banks and non-banking financial companies (NBFCs) can no longer alter the EMI or loan tenure without informing the borrower and obtaining their consent. In the past, banks used to extend the loan tenure or increase EMIs without consulting the borrowers.
From now on..
– Whether increasing the EMI or continuing with the same loan tenure…
To extend the loan tenure or keep the EMI unchanged…
Loan payers will have full control over matters like making prepayments to reduce the EMI or loan tenure.
Additionally, for every loan, key fact statements (KFS) will be mandatory from now on. These will include details such as the total loan amount, approved interest rate, loan tenure, EMI details, whether the interest rate is fixed or floating, total loan cost, all kinds of fees, prepayment charges, and early closure charges. Previously, many banks hid prepayment charges, making it difficult for borrowers to close loans early. Now, all such charges will have to be clearly stated in the KFS, making prepayments easier and more transparent.
Banks will also need to regularly update borrowers on any changes, such as EMI due dates, interest rate changes, loan balance interest details, prepayment options, and annual loan statements, through SMS or mobile apps. This will ensure borrowers are informed of any changes promptly.
Reviewing the loan agreement, requesting the key fact statement, monitoring EMI reductions, and ensuring that the previously mentioned terms are being followed, especially for those with floating-rate loans, by tracking interest rate changes — these are some of the ways in which borrowers can effectively utilize the new RBI regulations.
