RBI’s New Rule: No Prepayment Charges on Floating Rate Home Loans from Jan 1, 2026
The Reserve Bank of India (RBI) has introduced a crucial policy that will reshape the home loan landscape in India. From January 1, 2026, no prepayment charges will be allowed on floating-rate home loans and floating-rate business loans to MSEs, giving borrowers greater financial freedom and mobility.
What the New RBI Rule Says
Effective Date: January 1, 2026
Applies To: Floating-rate term loans sanctioned or renewed from this date onward
Covered Borrowers:
Individuals (including home loan and personal loan borrowers)
Micro and Small Enterprises (MSEs) availing business loans
Lenders Covered:
Scheduled Commercial Banks
NBFCs
Small Finance Banks, Regional Rural Banks (RRBs), and Co-operative Banks (for MSE loans up to ₹50 lakh)
Types of Payments Covered: Both full and partial prepayments
No Lock-in Period Required: Borrowers can prepay anytime without penalties
Why This Move Matters
The RBI aims to:
Promote fair lending practices
Encourage borrower mobility and choice
Eliminate hidden or non-transparent charges
Support MSEs under the Atmanirbhar Bharat vision
This rule ensures that borrowers are no longer penalized for reducing their debt early or switching to a better lender.
What Does It Mean for Borrowers?
No need to pay charges when repaying loans early
Freedom to refinance or close loans for better interest rates
Enhanced trust and transparency between lenders and borrowers
Clear disclosures must be made in the loan agreement
Prepayment on Fixed-Rate Loans: What’s the Difference?
Prepayment charges may still apply to fixed-rate loans, but only proportionate to the amount prepaid
For cash credit and overdraft accounts, lenders cannot charge prepayment fees if borrowers notify in advance and settle the loan within agreed terms
Vizzve Finance
Vizzve Finance has been one of the first platforms to break down this RBI update for the everyday borrower. Our blog on this topic saw a surge in Google search interest, gaining rapid indexation and organic traffic, thanks to our:
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FAQs: RBI’s Prepayment Policy on Floating Loans
Q1: Will this rule apply to loans already disbursed before January 1, 2026?
No. This rule only applies to floating-rate loans sanctioned or renewed on or after January 1, 2026.
Q2: What if the lender does not mention prepayment terms in the loan agreement?
If not disclosed in the Key Facts Statement or loan agreement, no charges can be applied.
Q3: Does this apply to fixed-rate home loans?
No. Prepayment charges may still apply to fixed-rate loans, although only proportionately.
Q4: Can NBFCs and cooperative banks charge penalties?
Not for eligible loans. NBFCs must comply, and cooperative banks are covered for MSE loans up to ₹50 lakh.
Q5: How does this help MSEs?
MSEs gain cost efficiency, can refinance easily, and better manage debt without worrying about penalties for early repayment.
Published on: July 4, 2025
Published by: PAVAN
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