No Prepayment charges on Floating Home Loans & Car Loans now

September 8, 2011   ·   0 Comments

Pre-payment penalty on floating rate loans, be it for a home or a car, is set to come to an end, bringing relief to lakhs of customers who are forced www.stockssavvy.comby banks to pay as high as 3% of the outstanding loan amount when they seek to end indebtedness. The levy of pre-payment penalty by banks has been criticised by consumer groups and the regulator, since it deprives an individual the choice to end the debt burden. Banks have been using it to prevent customers from shifting loyalty and manage their asset-liability gaps.

“Banks must not recover pre-payment charges in floating rate loans. Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it. Banks only substitute interest rate risk with potential credit risk.,” the Reserve Bank of India said in a statement on the proceedings of Banking Ombudsman Conference.

RBI’s decision is a very good thing since it will encourage people to settle their outstanding loans faster. It is usually a hidden charge and banks do not disclose it to the consumer. When the consumer goes to close a loan, banks spring this charge as a surprise.’ The annual Banking Ombudsman Conference also directed banks to come with a consensus view on the recommendations of the panel that could be implemented immediately. The Ombudsman scheme was introduced in 1995 to settle consumer disputes quickly in an inexpensive way.

Food for Thought: Axis bank needs to change their ad campaign immediately which advertises for zero prepayment charges.

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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