Lenders have to mandatorily offer fixed interest rate product in all equated installment based personal loan categories, according to RBI.

They should provide the option to borrowers to switch over to a fixed rate as per their Board approved policy at the time of reset of interest rates, per RBI’s FAQs (frequently asked questions) on the circular ‘Reset of Floating Interest Rate on EMI based Personal Loans’.

The different options available to borrowers in a rising interest rate cycle in respect with equated monthly instalment (EMI) based personal loans include switching to fixed interest rate for the remaining portion of the loan, RBI said.

The other options include – enhancement in EMI or elongation of the number of EMIs, keeping the EMI unchanged, or a combination of both options; and prepayment, either in part or in full, at any point during the residual tenor of the loan.

Back and forth

Once a customer has exercised an option to switch over from floating interest rate loan to a fixed interest rate loan, the lender is required to furnish an option to again switch back to a floating rate loan.

RBI said the intent of the circular is to allow flexibility to the customer to switch from floating rate loan to fixed rate loan or vice versa.

A lender is required to specify the number of times a borrower will be allowed to exercise the switch option during the tenor of the loan under its Board-approved policy.

The lender can levy charges for switching of loans or any other service charges/administrative costs incidental to the exercise of the switchover options and the same shall be transparently disclosed in the sanction letter and at the time of revision of such charges/costs by the lender, RBI said.

The applicable charges will be as approved by the board of the lender and will be displayed on their website as per extant instructions.