People who borrow money from banks or other financial companies are in for a pleasant surprise in the New Year.
The Reserve Bank has told banks and financial institutions that they can’t add extra charges if someone is late in repaying their loan.
Before, when people couldn’t repay their loans on time, banks and financial companies would often add extra fees and interest. The Reserve Bank noticed this and decided to make rules to stop it.
Now, the Central Bank has clearly explained the rules about charges for late payments, which is great news for customers.
Originally, this change was supposed to start from January 1, 2024. But now, customers will have to wait a bit longer because the Reserve Bank extended the deadline.
Banks and financial companies now have to follow the new rules for new loans from April 1. For existing loans, they must apply the new rules before June 30, 2024, without any exceptions.
The Reserve Bank had already explained these rules in a circular issued in August 2023. In that circular, the Central Bank explained how banks and financial companies can collect fees if payments are late.
The Reserve Bank’s goal is to encourage people to be responsible with credit by charging fees for late payments.
Now, the Reserve Bank has made it clear that banks cannot charge extra interest for late payments. It will only be called penalty charges. This means that if you’re late in repaying, you won’t have to pay extra interest on top of the penalty.
This is good news for customers because it stops banks from charging too much interest, which sometimes used to be much higher than the original interest on the loan.
