What is cooling off rule that allows you to cancel the loan you procured?

Summary

Did you know that you could get your loan cancelled if you change your mind during the cooling off period?

Borrower may be asked to bear a reasonable one-time processing fee if he exits the loan during cooling-off period.

Did you know that you can exit the loan if you change your mind within the first week or two? Sounds cool? Isn't it? This period is known as a cooling-off period during which borrowers are permitted to cancel their loan.

There could be several reasons for cancelling your loan. These include the following:

I. You got the loan, but later the need for which the loan was taken does not exist anymore. For instance, the renovation of the house is not needed as you now plan to sell the house and have got a good offer as well.

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II. You have got a better deal in terms of help from a friend who agreed to lend you money without any interest.

III. You have weighed all the pros and cons and conclude that you should not opt for a loan in the first place.

The reason could be one of these, or something else.

Duration of cooling-off period

The duration of the cooling-off period could range between 1-14 days, as per RBI's guidelines. If you opt for the cancellation of the loan, you need to inform the bank in writing. However, this varies from bank to bank. It is recommended to check the loan contract to see whether there is an option for a cooling-off period.

Processing fee

Meanwhile, it is vital to note that the customer may have to bear the processing fee when you cancel the loan.

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“Reasonable one-time processing fee can be retained if the customer exits the loan during the cooling-off period. This, if applicable, should be disclosed to the customer upfront in KFS. However, the processing fee has to be mandatorily included for the computation of APR,” states RBI's digital lending guidelines dated 2 September 2022.

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