Understanding the Key Fact Statement (KFS) in Loans: What Borrowers Must Know

When applying for a loan borrowers must have complete clarity about the terms, interest rates, fees, and other charges associated with their loan. To ensure this, the Reserve Bank of India (RBI) has made it mandatory for all regulated entities, including banks, Non-Banking Financial Companies (NBFCs), and digital lenders, to provide a Key Fact Statement (KFS) to borrowers before loan disbursal.

This article will help you understand what a Key Fact Statement is, why it is important, and what details it must contain.

What is a Key Fact Statement (KFS)?

A Key Fact Statement (KFS) is a standardized document that summarizes the essential terms and conditions of a loan in a simple and easily understandable format. It helps borrowers compare different loan offers and make informed decisions without hidden surprises.

The RBI has mandated KFS to ensure that borrowers are fully aware of the financial commitments they are entering into and to prevent misleading practices in lending. What’s more, RBI has standardized the KFS format.

Why is a Key Fact Statement Important?

Many borrowers, especially first-time applicants, may overlook critical details such as processing fees, interest computation methods, foreclosure charges, and penalties for late payments. A KFS ensures:

• Clarity and Transparency: All financial terms are explicitly stated, reducing ambiguity.
• Informed Decision-Making: Borrowers can compare loans based on uniform disclosure formats.
• Regulatory Compliance: RBI mandates this document, ensuring fair lending practices.
• Protection Against Hidden Charges: Lenders cannot impose undisclosed fees later.

What Details Does a Key Fact Statement Contain?

The RBI has provided a standard format for KFS, which lenders must adhere to. A typical KFS includes:

Loan Amount and Tenure

The sanctioned loan amount and disbursed amount (if any deductions apply before disbursal). The loan tenure (the total repayment period).

Interest Rate Details

The Annual Percentage Rate (APR), which includes the effective cost of borrowing. Whether the interest rate is fixed or floating.

All Fees and Charges

Processing fees and other administrative charges. Foreclosure/prepayment charges, if applicable. Late payment penalties and the method of calculation.

Repayment Terms

The Equated Monthly Installment (EMI) amount. The due dates for repayment. The mode of repayment (auto-debit, UPI, cheque, etc.).

Security and Collateral (if applicable)

Whether the loan is secured or unsecured. Details of the collateral provided for secured loans.

Customer Grievance and Contact Information

Details on whom to contact in case of disputes. Escalation process, including RBI Ombudsman details.

RBI Guidelines on KFS: Digital Lending and NBFC Compliance

The RBI’s latest guidelines, especially for digital lending and NBFCs, emphasize that:

• The KFS must be provided to the borrower before loan disbursal.
• No lender can charge any amount that is not explicitly mentioned in the KFS.
• Digital lending platforms must ensure that borrowers receive the KFS via email, SMS, or app notifications.

How Borrowers Can Use the KFS Effectively

1. Compare Loan Offers: Since all lenders follow a standard format, you can compare different lenders based on interest rates and charges.
2. Check for Hidden Charges: Ensure that all fees are disclosed upfront to avoid unexpected costs later.
3. Understand Repayment Terms: Confirm the EMI amount, tenure, and repayment schedule to plan finances accordingly.
4. Verify Compliance: If a lender does not provide a KFS, it may indicate non-compliance with RBI norms.

A Key Fact Statement is an essential document that protects borrowers by ensuring transparency in loan terms. Before signing any loan agreement, always review the KFS carefully to avoid hidden charges and ensure you are getting a fair deal.

At Quicklend, we prioritize transparency and compliance with RBI regulations. Our customers receive a detailed Key Fact Statement before every loan disbursal, helping them make confident and informed financial decisions.