Mumbai, July 3 -- In a major relief for borrowers, the Reserve Bank of India (RBI) has announced that banks and other regulated lenders will no longer be allowed to impose pre-payment charges on loans taken by individuals for purposes other than business.

The RBI observed that some lenders were using restrictive clauses in loan contracts to discourage borrowers from switching to other lenders offering better interest rates or services.

As per the new guidelines released on Wednesday, these directions will come into force for all loans and advances sanctioned or renewed on or after January 1, 2026. This rule applies whether the loan has a co-obligant or not.

The RBI has clarified that, no pre-payment charges will be levied on floating r...