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Car loan, home loan or any personal loan. You should make sure to read the Key Fact Statement. Many people do not even know what a Key Fact Statement is forget about reading it. Even though loans are easily available, it is not so easy to repay. Difficulty increases when, along with the expensive interest rate , many other fees are also charged and all the more you are not even aware of it. Therefore, it is very important that you ask for a Key Fact Statement from the bank or NBFC, and read it carefully.

What is a Key Fact Statement?

Key Fact Statement or KFS is actually a small document that contains all the charges levied on a loan. While taking a loan, the bank or NBFC can give you a file of many pages, you will get bored of reading it. This is where the Key Fact Statement comes in handy.. It is a one-page document that you can easily read to find out all the charges and fees levied. It includes information on interest rate, loan amount, loan tenure, processing fee, foreclosure charges, late payment fee etc.

Some banks and NBFCs give the Key Fact Statement before loan agreement is signed. But all banks do not give it. That’s why RBI has recently taken an important step. The central bank has made it mandatory for all banks and NBFCs to provide Key Fact Statement to borrowers. Till now, it was mandatory for entities in the business of digital loan and small size loans. But now all lenders and NBFCs will also have to give this statement.

Most customers are not able to fully figure out the cost of the loan. While, the interest rate is clearly stated, the additional fees, which affect the overall cost, are not clearly given . Because of this, it is difficult for borrowers, especially those who need small size or personal loans, to compare different loan products and understand the actual cost of it.

Experts say that many sections related to fees, charges, and penalties are hidden in loan agreements. The KFS provides borrowers with a summary of all this information. It is in an easy-to-understand table format. Therefore, it is important to ask for a Key Fact Statement while applying for a loan. Although it has become mandatory to provide KFS after RBI’s instructions, it is also possible that banks or NBFCs may delay providing it, or, they make excuses. In such a situation, it is also important to understand what the borrower should do.

It is also important to read the KFS. Because, by reading it you will be able to understand the difference between Annualized interest rate and Annualized percentage rate which is (APR). While Annualized interest rate is the annual interest rate charged on the loan, APR includes all the costs associated with the loan. This includes processing fees, insurance charges, and other upfront charges. Let’s understand this with an example. You have taken a loan of Rs. 1 lakh from an NBFC with an annual interest rate of 18%. you have to repay it in 3 years, then in this case the APR will be 20.16. You can understand this from this chart. Therefore, it is important to first look at the APR in the KFS.

Therefore, it is important to ask for a key fact statement and to read and understand it. With the key fact statement you can find out all types of charges which will be levied with the loan. So, ask for this statement, because if you understand the complexities of the loan, it will be easier to repay it.