For Quick Alerts
For Daily Alerts

No prepayment penalty on home and car loans


No prepayment penalty on home and car loans
Reserve Bank of India has given a fair reason to smile to millions of loan borrowers by sparing them from paying prepayment charges. Now, you need not worry of prepayment penalty if you would like to make entire home or car loan payments in advance before due date provided it should be floating rate loan.

Though prepayment of loan sounds good as the borrower would be out of its financial obligation, but bank customers were forced by banks to pay as high as 3% of the outstanding loan amount when they desire to end their liability.


At the annual conference held at the Reserve Bank of India (RBI) on Monday, Banking Ombudsmen (Government official appointed to investigate citizen's complaints against government officials, large public and private corporations, banks or print media) have suggested that lenders need to compensate floating rate loan borrowers when they already pay high interest rates in times of rising rates scenario.

RBI has given the green signal for this suggestion in favor of loan borrowers to improve the customer service. This decision of RBI to forgo penalty of floating rate loan borrowers would encourage people to settle their outstanding loans faster.

The National Housing Bank has already directed housing finance companies like HDFC and LIC Housing Finance not to impose prepayment charges where the borrower uses his own funds to reduce his loan liability. However, these companies are allowed to impose a penalty where the borrower refinances the loan.

The Ombudsmen conference also introduced measures to protect customers in an unauthorized ATM transactions, where the fault is not theirs in disputes over ATM and internet transactions. RBI will ponder whether the compensation to be provided for the trouble seen by the customer during a dispute.

Other suggestions of the Banking Ombudsman Committee also include an end to discrimination among retail borrowers, uniform charge for mortgages with similar risk profile and not penalizing those presenting a cheque in case it bounces.


The Banking Ombudsman Scheme, which was introduced in 1995 also provides an additional grievance redressal platform for consumers where they have freedom to approach in case if they are unhappy with certain rules and regulations.

Story first published: Wednesday, September 7, 2011, 10:26 [IST]
Company Search
Get Instant News Updates
Notification Settings X
Time Settings
Clear Notification X
Do you want to clear all the notifications from your inbox?
Settings X