Non-banking lenders, called NBFCs, may raise interest rates and fees, according to reporting by The Economic Times. The reason is a hit to the money they earn from selling insurance.
If you plan to borrow from an NBFC, the loan could cost a bit more. Nothing is final yet, so compare offers before you sign anything.
Key takeaways
- NBFCs are reportedly weighing higher rates and higher fees on loans.
- The trigger is lower income from the insurance they sell.
- Fees can raise your cost as much as rates do.
- Floating-rate loans you already have could be affected, so check your agreement.
- Compare the total cost of a loan, not just the rate.
How NBFC insurance income works
An NBFC is a lender that isn't a bank. Many of them also sell insurance along with loans. For example, a life or health cover may come attached to a personal loan.
When someone buys that cover, the lender usually earns a commission from the insurer. That money adds to the lender's profit. The Economic Times reports that this income has taken a hit. The headline doesn't say how big the fall is, so we won't guess.
When one income stream shrinks, lenders look for another way to earn. Rates and fees are the easiest levers. A lender can change them without changing much else.
What changes for borrowers
A higher rate raises your EMI. EMI means equated monthly instalment, the fixed amount you pay each month. A higher fee raises what you pay upfront. Processing fees are usually a percentage of the loan.
Here's an illustrative example. Take a ₹3 lakh personal loan for 3 years. These numbers are examples, not offers from any lender.
| Case | Interest rate | Processing fee | Monthly EMI | Total cost with fee |
|---|---|---|---|---|
| Today's example | 16% | 2% (₹6,000) | ₹10,549 | about ₹3.86 lakh |
| Higher rate only | 17% | 2% (₹6,000) | ₹10,697 | about ₹3.91 lakh |
| Higher fee only | 16% | 3% (₹9,000) | ₹10,549 | about ₹3.89 lakh |
| Both rise | 17% | 3% (₹9,000) | ₹10,697 | about ₹3.94 lakh |
So a one-point rate rise adds about ₹148 to your monthly EMI. A one-point higher fee adds ₹3,000 at the start. Together they add about ₹8,300 over the loan. You can test your own numbers with the EMI calculator.
Who is affected
New borrowers are hit first. Lenders can change the price of fresh loans quickly. Unsecured loans, like personal loans, already carry higher rates, so the change may show up there.
If your current loan has a fixed rate, it shouldn't change. If it has a floating rate, the lender may reset it as your agreement allows. Read that clause today.
RBI expects NBFCs to be open about their rates and fees. A lender must tell you the full cost before you accept. You can see where you stand with the eligibility check.
What to do now
You don't need to panic. A few simple steps can protect your wallet.
- Ask for the full cost in writing. Include the rate, the fee, GST and any insurance charge.
- Ask if the insurance is optional. Don't buy cover you don't need.
- Compare at least three lenders, including banks. Check personal loan guides and interest rates first.
- Ask the lender to cut the fee. Many will, if your credit score is good.
- Confirm the lender is registered with RBI before you borrow.
For more updates like this, visit our news hub.
Frequently asked questions
Will my current NBFC loan become costlier?
Not if the rate is fixed. If the rate is floating, the lender can reset it as your agreement allows. Check your loan papers.
Are the rate hikes confirmed?
No. The Economic Times reports that NBFCs are considering them. Lenders may decide differently.
Is it better to borrow from a bank instead?
Not always. Banks often charge less, but approval can be harder. Compare the total cost from both before you choose.
BankCreds analysis
Less dramatic than it sounds
This is a report about what NBFCs are considering. It isn't a confirmed rate hike. Many lenders may do nothing, and others may raise fees only a little.
The bigger worry for most households is the fee, not the rate. A rate rise of one point on a ₹3 lakh loan costs about ₹148 a month. A fee that rises from 2% to 3% costs ₹3,000 on day one, and you can't get it back.
One group is clearly worse off: first-time borrowers with thin credit history. They have the least power to bargain. A salaried borrower with a good score has more room, so ask for a lower fee. Many lenders will agree.
Don't rush into a loan this week out of fear. Rushing usually costs more than waiting a few days and comparing offers.
This section is BankCreds' own assessment of what the development means for Indian borrowers and savers. It is independent commentary, not part of the source reporting above.
Sources & references
- The Economic Times — originating report https://m.economictimes.com/markets/stocks/news/nbfcs-may-raise-loan-rates-fees-to-offset-insurance-income-cap/articleshow/135667186.cms
- RBI Master Directions — NBFC rules on fair practices and openness about rates and fees https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx
- RBI list of registered NBFCs — check that a lender is registered before you borrow https://www.rbi.org.in/Scripts/BS_NBFCList.aspx
Source links are shown as plain text, not clickable links. Copy a URL into your browser to read the original report.
Editorial note & disclaimer
How this was reported. The development above is attributed to the source or sources listed. BankCreds does not independently verify a third party's reporting; where a figure or a regulatory position is stated as fact, it is either attributed or drawn from the regulator's own published material. Everything under "BankCreds analysis" is our own assessment.
Rates and figures. Interest rates, per-gram values and premium bands quoted here are indicative, move daily, and differ by borrower profile, city and lender policy. Confirm the final number with the institution before you act on it — the sanction letter or policy schedule governs, not a news report.
Not financial advice. This article is general information for an Indian audience. It is not investment, tax, credit or insurance advice, takes no account of your circumstances, and BankCreds is not a lender, broker, distributor or advisor. Consider speaking to a SEBI-registered investment adviser or a qualified professional before acting.
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