It’s necessary to understand all the terms and conditions that are associated with taking a loan. This is where the Key Fact Statement or KFS comes into play and makes the entire process transparent. Before signing the documents for a loan, the applicant must ask for a KFS from the lending institution. It simply acts as a master guide for applicants to understand what they are signing up for.
What is KFS?
A Key Fact Statement is a crucial document that’s provided by the lending institution to anyone who is applying for a loan. This document has important details about the loan terms, associated costs, and other formalities in a very simple and easy-to-understand format. With all these details, the applicants are empowered to make sound financial decisions and not run into any unwanted trouble.
Goal of KFS
- Improving Transparency: It aims to give a straightforward understanding of the main components of a loan to the borrower. This includes the costs, terms and conditions, and obligations. It helps in reducing the chances of any misunderstanding occuring between the borrower and the lender.
- Regularity Across Institutions: With this document, the format of presenting information about loans becomes uniform across every lending institution. Not only does the borrower get specifics about the loans but they can also easily compare it with other institutions.
- Safeguarding Borrowers: RBI has specifically designed this document to save borrowers from any hidden costs that may be applied to them. All the applicable charges, additional fees, and conditions are neatly outlined in the document to help the borrower know what they are getting into.
- Jargon proofing: The language in the loan agreements is often a bit complex and technical. KFS simplifies it to the extent that everyone understands it properly.
- Promoting Ethical Lending Practices: With all the information out there in KFS, no lending institution can scam people by changing the rules. As every detail is spelled out in the documents, the RBI has ensured that borrowers are treated fairly.
- Assisting Grievance Redressal: By adding the details about where a borrower can go in case of any disputes or issues, KFS ensures that the borrower is aware of their rights. It also makes the lending institutions more accountable.
What is included in KFS?
Here’s everything that is included in the KFS document:
- Total Loan Amount: The entire sum of money that is being borrowed.
- Rate of Interest: The percentage charged on the total amount of loan, that’s fixed or variable.
- Loan Tenure: Information about the frequency and amount of every payment and the duration of it too.
- Applicable Charges: A proper rundown of all the charges, like the processing fees, late charges, penalties, etc.
- Total Loan Amount: All the details about the exact amount that will be repaid, which includes the additional charges and interest rate.
- Terms and Conditions: Every clause that is associated with the loan, about the repayments, collateral, certain conditions, etc.
- Contact Details: Finally, at the end of all this, the contact details of the lender must be mentioned in the KFS, in case of any concerns or questions that may arise.
Key Updates Done By RBI in KFS
While it’s recommended to go through the new guidelines thoroughly, here’s a quick lowdown about key changes introduced by the RBI Key Facts Statement (KFS) guidelines:
- Mandatory for MSME and Retail Loans: As per the update, the KFS is mandatory for all MSME and retail term products. Credit card products have a specific exception.
- Standardised Format: The RBI has provided a standardised format for KFS in Annexures A, B, and C. If there’s no KFS in the workflow, it needs to be added at the earliest.
- Local Language: To improve the accessibility of loans, the RBI has now made it mandatory to provide the KFS in local languages.
- Borrower Acknowledgement: It is now compulsory to get an acknowledgement from borrowers that they’ve understood the KFS and consent to everything written in it. This should be done before sending the loan agreement to the borrower. While sending the loan agreement, it is also necessary to add KFS along with it as a summary box.
- Changing Terms and Conditions: It’s illegal to go against the conditions put in the KFS. If the KFS needs to be updated, the lender needs the permission of the borrower to do so.
- Buffer Period: A borrower has 3 days to go through the KFS and sign it.
How To Get Hold of KFS?
By law, banks are required to provide KFS to the borrower before signing the loan agreement. It’s available on the banks’ website in most cases, can be collected from the nearest branch, or can also be shared via email. The borrower must request a KFS before opting for a loan to ensure that they are getting the best deal with acceptable terms and conditions.
Summing Up
Opting for a loan is a big commitment for anyone, and if there’s little or no clarity about what a person is signing up for, the results could be disastrous. That’s why it is important to always ask for a Key Factor Statement beforehand to get a quick summary of the entire process and conditions. Additionally, the borrower can get the best possible deal available in the market once they’re aware of the KFS.
FAQs
What Is a Key Fact Statement?
A key fact statement is a document that summarises the details of a loan agreement between a lender and the borrower. It gives every detail in a simple and easy to comprehend way.
How to Accept a Key Fact Statement?
Borrowers can ask for a KFS before signing the loan agreement and take up to 3 days to sign and send it.
What are the Benefits of KFS?
KFS is a mandatory document while opting for a loan that gives borrowers a clear understanding of the loan. This includes details about the total loan amount, interest rate, additional charges, and repaying criteria.
