Worried about rising interest rates, and in turn your interest costs in existing loans. There is reason to cheer, if you are a floating home or auto loan customer.
The Reserve Bank of India (RBI) in a meeting with the banks on September 6, 2011, has asked the banks to stop levying pre-payment charges on loans taken by individuals for home or auto under the floating rate scheme.
The move is beneficial for retail segment, which may have borrowed money from the banks a year ago or so under the floating rate scheme. Given the fact, that the interest rates have gone up considerably in the last one year. It sounds a good option, for the individual to re-pay the loan now without any extra cost.
Normally, banks were collecting 2-3 per cent on an average as a pre-payment penalty of loans.
A individual may opt for pre-payment of loan if he has surplus funds available with him. Secondly, given the competition, the individual may also want to shift his loan to some other bank, if he gets a better bargain there.
However, the RBI circular has made it clear that the banks can continue to charge penalty in case of pre-closure of loans under the fixed-rate regime.