RBI Issues Guideline on Pre-payment Charges on Loans to Make Prepayment Easier
The Reserve Bank of India (RBI) is introducing rules called the Pre-payment Charges on Loans Directions, 2025, to stop unfair penalties charged by banks and financial institutions when borrowers repay their loans early. Prepayment charges, also known as prepayment penalties, are fees that a lender may charge to their borrower for paying off a loan early. From January 2026, the RBI is making it easier and cheaper to prepay loans.
These new guidelines are especially for the Micro and Small Enterprises (MSEs) and individual borrowers, who face hidden charges, unclear terms, or restrictions when trying to close or switch loans.
These guidelines are for all commercial banks (except payments banks), Co-operative banks, Non-Banking Financial Companies (NBFCs), and all India Financial Institutions.