RBI Personal Loan Guidelines: Rates, Default Rules & Lending Norms

The RBI guidelines for personal loans set the rules that every bank and NBFC must follow. These guidelines decide how lenders charge interest, verify applications, share loan details and recover EMIs. They exist to keep the borrowing process fair, transparent and safe for every customer. They also protect you from hidden charges and unethical recovery methods. Knowing the rules of RBI for personal loans can help you understand your rights clearly and apply for credit with confidence.

RBI Guidelines for Personal Loan Interest Rate

Here are the guidelines set by the RBI on the interest rate of personal loans:

• Lenders must charge interest on loans and other types of credit in accordance with the guidelines issued by the RBI from time to time.
• The interest on loans at the specified rates must be charged on a monthly basis.
• Lenders must set the interest rates as per the Base Rate by including other customer-specific charges.
• The interest rates must be transparent, consistent and available for supervisory review.
• Each financial institution has one transparent Base Rate, which is determined using any benchmark.
• Lenders can offer loans on fixed or floating rates, even after implementing the Base Rate system.
• If your floating interest rate changes during a reset cycle, you get a few options. You can increase your EMI, extend your tenure or switch from floating to fixed if your lender allows.

RBI Guidelines for Personal Loan Defaulters

The guidelines framed by the RBI in case you default on your personal loan are given below:

• A loan becomes delinquent if payment is late by a few days.
• Lenders allow a 10-15-day grace period for missed EMIs and send regular reminders during this time.
• After the grace period, the overdue period begins and the lender starts applying a late payment fee.
• If you consistently miss your EMI payments, the lender can file a case u/s 138 of the Negotiable Instruments Act of 1881.
• In genuine default cases, lenders should work with you to devise a suitable repayment plan.
• In case of regular non-payment, lenders will involve loan recovery agents by adhering to the RBI guidelines.
• Continued non-payment after the overdue period may result in the loan being declared a Non-Performing Asset (NPA).
• Lenders use various methods, like restructuring the repayment plan, managing cash flow, etc., to recover NPAs.

RBI Guidelines for Financial Institutions 

Here are some of the guidelines outlined by the RBI regarding personal loans to protect your interests: 

• The loan application must include all the necessary information regarding the loan, including the interest rates and fees.
• The financial institution should verify the loan application promptly, within a specified period.
• Banks and other lending institutions should provide acknowledgement receipts for all loan applications.
• The institution offering the loan should contact you without any delay if they need any additional paperwork.
• The lender should communicate the reason for the rejection of loans of less than ₹2 lakhs in writing.
• The institution should inform you about any changes in the terms and conditions well in advance.
• The lending institution cannot discriminate against you on the basis of your caste, religion, sex or other reasons.
• The lender cannot resort to illegal or unethical ways to recover the borrowed amount.
• The lender must give adequate notice for cancellation, recall or request for quicker payments.

Personal Loan Terms

One of the most significant benefits of these loans is that they don’t come with any restriction on the end usage. You can use the funds for anything, such as: 

• Education
• Weddings
• Travel
• Medical treatment
• Home improvement
• Business

However, they do have other restrictions and policies. It is very important for you to read the terms and conditions of a loan before you sign the dotted line. Take a look at some common terms to be aware of.

Qualifying Criteria: Meeting the eligibility terms set by the lender is important to get quick approval on your loan application. Usually, lenders check the following: 

• Your age 
• Your income and employment stability 
• Your credit score 
• Your existing obligations 

Repayment Conditions: While you can choose your tenure, these terms refer to the interest rate applicable to your loan. It also helps you understand whether you will be repaying on the basis of flexible or fixed rates as well as how you will repay:

• Bullet repayment
• Lump sum payment
• EMIs

Foreclosure and Prepayment Policies: This section of terms and conditions informs you about the rules related to making a part-prepayment or foreclosing the loan. This refers to costs related to these facilities.

Applicable Charges: Banks and NBFCs charge processing along with other fees on personal loans. Other applicable charges may include part-prepayment or foreclosure charges, statement charges, EMI bounce charges and more. Read the terms and conditions carefully to spot any hidden charges included in the loan application.    

In conclusion, all RBI-registered lenders follow the mandatory regulations laid down by the central bank. Fibe follows these ethical lending practices and offers an Instant Cash Loan of up to ₹5 lakhs. Download the Fibe Personal Loan App to enjoy quick loan sanctions with a simple application process and minimal paperwork.

FAQs on RBI’s Personal Loans Guidelines

What are the RBI’s loan guidelines?

The Fair Lending Practices Code by the RBI aims to regulate the personal loan segment for transparent and ethical disbursal of loans. These guidelines include:

• Providing comprehensive loan applications with mention of key details about rates and charges
• Time-bound verification and disbursal of loans
• Conveying reasons for rejection of application

The lending policies of all banks and NBFCs need to adhere to the RBI’s personal loan guidelines. 

What is the new rule of RBI for personal loans?

The RBI now requires lenders to give a clear Key Facts Statement, keep your total EMI within 50 percent of your income and offer switching options on floating-rate loans. These rules make borrowing more transparent and easier to understand.

If I switch from floating to fixed interest rate, what RBI rules apply?

You can switch only if your lender allows it. The RBI requires lenders to explain the switching cost, any change in EMI or tenure and all related charges before they process your request.

How does RBI ensure ethical recovery practices for personal loans?

The RBI has strict conduct rules for lenders and recovery agents. They must not harass borrowers, call only during permitted hours and pause recovery if a complaint is raised.