Getting a loan is difficult for most borrowers. Even when it is available, borrowers are often not fully aware of actual amount they need to repay.
Lenders generally advertise or promote interest rates to attract prospective borrowers. But they do not publicize the hidden charges that come along with loans. All of this is going to change soon, making life easy for borrowers, thanks to RBI.
The Reserve Bank of India has decided to extend the requirement of Key Fact Statement to all retail and MSME loans and advances. This move will make it tough for lenders to impose hidden charges on retail and MSME loans. Moreover, KFS will allow borrowers to make informed choices.
RBI Governor Shaktikanta Das announced the decision to make KFS mandatory for retail and MSME loans after the Monetary Policy Meeting on Thursday (February 9, 2024).
Also Read: RBI Key Facts Statement Format, Validity, Features, Benefits, Rules – Explained
“At present, the loans and advances availed by borrowers, apart from including the rate of interest, also include other fees and charges such as processing fees, documentation charges, etc. To enhance transparency in disclosure of such information, the Reserve Bank had mandated certain categories of lenders to provide the borrower a Key Fact Statement (KFS) containing essential information such as the all-inclusive annual percentage rate (APR) and recovery and grievance redress mechanism,” he said in a statement.
“The requirement of KFS is now being extended to cover all retail and MSME loans. This measure will lead to enhanced transparency in lending and enable customers in making informed decisions,” the Governor added.
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According to SBI Research, KFS for retail and MSME loans is a significant step towards empowering customers with comprehensive information. It will enable them to make informed decisions about borrowing.
What is Key Fact Statement?
Apart from interest rate, borrowers are often unaware of hidden charges like processing fees and documentation charges. This practice makes it difficult for borrowers to compare various options or making informed choices.
KFS makes customers aware about all the charges they will have to pay on taking a loan. It provides a clear understanding of actual annualized interest rate and the overall financial commitment associated with the loan. It includes details like interest rates, processing fees, documentation charges etc.
“The Key Fact Statement for retail and MSME loans is designed to provide customers with a clear understanding of the actual annualised interest rate and the overall financial commitment associated with the loan. This move can be seen as a significant step towards empowering customers with comprehensive information, enabling them to make informed decisions about their borrowing,” says SBI research.
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