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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Debt Management and Loans

Under the usual lender practice for personal loans, which statement about prepayment of a floating-rate term loan taken by an individual is correct as per RBI directions?

Banks cannot charge foreclosure or prepayment penalties on floating-rate term loans given to individual borrowers for non-business purposes, according to RBI directions. Such charges may still apply to fixed-rate loans under the loan contract.

  1. ABanks may levy heavy prepayment penalties on all individual floating-rate loans
  2. BBanks cannot levy foreclosure charges or prepayment penalties on floating-rate term loans to individual borrowers, for non-business purposesCorrect
  3. CPrepayment is allowed only at the end of the tenure
  4. DPrepayment is allowed only with the borrower's co-applicant's consent

Explanation

RBI directions bar prepayment or foreclosure charges on floating-rate term loans given to individuals for non-business purposes. Fixed-rate loans may carry such charges as per contract.

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