If you have already taken a personal loan or are about to take one, then there is a latest update for you. The Reserve Bank of India (RBI) has directed banks to give borrowers the option to convert floating rates on personal loans to fixed rates at the time of restructuring interest rates. This means that whenever the interest rate on personal loans is going to be increased, they will give you the opportunity to switch the loan from floating rate to fixed rate or vice versa. According to the news of Livemint, RBI has recently issued a set of frequently asked questions (FAQs) regarding the circular to restructure floating interest rates on EMI based personal loans.

The borrower can choose to increase the EMI amount or extend the loan tenure. This way he can keep the EMI the same or do a combination of both options. Another option that the bank should offer the borrower is to allow him to switch to a fixed interest rate for the rest of the tenure. Another option that the borrower has is to prepay partially or fully at any time during the loan tenure.

Mandatory Offering Instructions

According to the news, RBI has instructed banks to mandatorily offer fixed interest rate product in all EMI based personal loan categories. Banks have also been asked to give borrowers (who had earlier opted for floating interest rate) the option to switch to a fixed rate at the time of interest rate reset. However, RBI has made it clear that the bank can charge applicable charges for switching the loan from floating to fixed rate or vice versa.

What is a personal loan

A personal loan is a type of credit that allows individuals to borrow a lump sum amount for various personal expenses, such as home renovation, medical bills, etc. Borrowers agree to repay the loan in fixed monthly installments over a specified period, which usually ranges from one to five years. The interest rate on a personal loan usually depends on the financial institution's policies, the borrower's credit score, income, and overall financial profile.