Until now, if you wanted to pre-pay your loan or transfer it to another bank with lower interest rate, the bank would charge you a penalty under the head of pre-payment/foreclosure. This penalty was as high as 5 – 6% of the total loan amount and stopped people from switching to a lower interest rate (within/ to another bank). Home Loans were an exception to this, as RBI had banned prepayment penalty 2 years ago. Now prepayment penalty has been banned across all types of loans for individual borrowers. This means that people with Auto loans, education loans, Loan against property and personal loan can now save by switching to a lower interest rate! However, this is applicable only on floating rate loans from commercial banks. This does not apply on;
All fixed rate loans
Loans from NBFCs
Loans taken by small businesses
Since the banks will take a while to update their software systems, do expect some time before the benefits actually become available to you. In all, this is great news for lakhs of Indians who will benefit from this decision. We have repeatedly received requests for switching services for Education loans, Auto loans and loan against property. We will start these services soon. Do send in your suggestions and comments. Meanwhile, use the calculator below to see how much you can save on your home loan by switching to a lower interest rate.
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