Key Facts Statement for a home loan: what it shows about insurance and fees
Short answer: since 1 October 2024 a lender must give you a Key Facts Statement (KFS) for a new retail loan. It shows an APR that includes the interest rate and the other charges, and it must list third-party charges such as insurance and legal fees separately. A charge that is not in the KFS cannot be added later without your explicit consent.
What the RBI direction requires
From the RBI's Key Facts Statement direction for loans and advances, dated 15 April 2024 (read it on the RBI site).
| Topic | What it says |
|---|---|
| APR | The annual cost of credit. It includes the interest rate and all other charges the lender levies (paragraphs 3 and 6). |
| Insurance and legal fees | Third-party charges the lender collects on an actual basis, "such as insurance charges, legal charges etc.", form part of the APR and are disclosed separately (paragraph 7). |
| Charges added later | A charge not mentioned in the KFS cannot be charged at any stage during the loan without the borrower's explicit consent (paragraph 8). |
| How long the offer holds | At least three working days for a loan of seven days or more. If you agree within that period, the lender is bound by the terms (paragraph 5). |
| Which loans | New retail and MSME term loans sanctioned on or after 1 October 2024, including fresh loans to existing customers (paragraph 11). |
What is on the statement itself
From Annex A, the standard format every lender must use (same RBI direction).
| Line | What it shows |
|---|---|
| Loan details | Sanctioned amount, loan term, the instalments (number and amount, and when repayment starts), and the disbursal schedule: in stages or 100% up front, with the clause of the agreement if in stages. |
| Interest rate | The rate and its type: fixed, floating or hybrid. |
| If the rate is floating | The reference benchmark and its rate, your spread, the final rate (benchmark plus spread), how often it resets, and the impact on your EMI and number of EMIs of a 25 bps change in the final rate. |
| Fees and charges | Processing fees, insurance charges, valuation fees and any other, each shown as payable to the lender or to a third party through the lender, one-time or recurring. |
| APR | One percentage, with a computation sheet and the repayment schedule attached. |
| Contingent charges | Listed separately, after the APR: penal charges for delayed payment, other penal charges, foreclosure charges, and charges for switching from floating to fixed rate and back. |
| Other information | The clause on recovery agents, the grievance process and the nodal officer's phone and email, whether the loan may be transferred or securitised, and details of any co-lending arrangement. |
Two details in the notes to the template: a lender may show fee amounts net of taxes such as GST, and where a charge cannot be fixed before sanction, it may show an upper ceiling.
Why the APR is higher than the interest rate
The interest rate tells you the price of the money. The APR also spreads the fees and any insurance premium over the loan, so it is the better number for comparing two offers. A lower interest rate can still carry a higher APR.
A worked example with made-up numbers. Rs 50 lakh over 20 years, with the premium in Offer B added to the loan amount:
| Offer A | Offer B | |
|---|---|---|
| Interest rate | 8.50% | 8.40% |
| Fees | Rs 30,000 | Rs 30,000 |
| Insurance premium | None | Rs 1.5 lakh, added to the loan |
| Loan the EMI is calculated on | Rs 50.0 lakh | Rs 51.5 lakh |
| EMI | Rs 43,391 | Rs 44,367 |
| APR | 8.58% | 8.89% |
| Paid over the 20 years above the cash you receive | Rs 54.4 lakh | Rs 56.8 lakh |
Offer B has the lower rate and the higher APR. The premium is added to the loan, so you pay interest on it for the full term. APR is calculated as 12 times the monthly internal rate of return on the cash that reaches you. The numbers are illustrative and are not a lender's quote.
How the APR is worked out. The RBI's own illustration (Annex B) takes a Rs 20,000 loan at 15% over 24 monthly instalments with Rs 400 of charges, so Rs 19,600 reaches the borrower. It calculates the APR on that net disbursed amount, by the internal rate of return on a reducing balance, and gets 17.07%. The same method gives 17.07% when we run those inputs, and it is the method used in the table above and in the offer decoder. The contingent charges are not part of that calculation.
Three ways insurance can appear
- Paid up front. The premium is deducted or paid at the start, so less cash reaches you for the same loan amount.
- Added to the loan. The loan amount rises by the premium, and so does the EMI. Interest runs on it for the whole term.
- Included in the EMI or charged each year. Check how often it is charged and whether the amount changes.
Whichever applies, the KFS must show it as a third-party charge and count it in the APR. Compare two offers on the same basis with the home loan offer decoder, which takes the numbers from the KFS and works out the APR, EMI and extra paid for each.
Are there hidden charges after the KFS?
The KFS exists to put the charges on one page. Under the RBI direction a charge that is not in it cannot be levied later without your explicit consent. Read the KFS against your sanction letter, and check that every fee, premium and deduction in the loan agreement appears in the KFS.
Questions to put to the lender in writing
- Is the insurance optional for this loan? Who is the insurer, what is the premium and what is the cover amount?
- Is the premium paid up front, added to the loan or charged each year?
- Are the fee amounts shown with or without GST? If a charge is shown as a ceiling, what is the likely amount?
- What are the contingent charges: penal charges for delay, foreclosure charges, and charges for switching between floating and fixed?
- If the loan is paid out in stages, which clause of the agreement sets the schedule?
- Until what date does this KFS hold?
Whether to take insurance, and from whom, is your decision. LoanRepo does not recommend a lender or an insurance product and takes no commission.
Questions
What is the APR in a Key Facts Statement?
The APR is the annual cost of credit. The RBI direction says it includes the interest rate and all other charges associated with the loan, so it is usually higher than the interest rate. It lets you compare two offers on the full cost, not just the rate.
Does the APR include insurance?
Third-party charges that the lender collects, such as insurance and legal charges, form part of the APR and must be disclosed separately, according to the RBI's Key Facts Statement direction of 15 April 2024.
Can a lender add charges after I accept the Key Facts Statement?
Not without your explicit consent. The RBI direction says a charge that is not mentioned in the Key Facts Statement cannot be levied at any stage during the term of the loan unless the borrower explicitly agrees.
How long is a Key Facts Statement valid?
For loans with a tenure of seven days or more, the validity period must be at least three working days. If you agree to it within that period, the lender is bound by its terms.
Since when is the Key Facts Statement mandatory?
For new retail and MSME term loans sanctioned on or after 1 October 2024, including fresh loans to existing customers.
Does the APR include penal and foreclosure charges?
The statement lists contingent charges separately, after the APR: penal charges for delayed payment, other penal charges, foreclosure charges, and charges for switching between floating and fixed rates. The RBI's own APR illustration is calculated on the net disbursed amount and the instalments, and does not include them.
Does the Key Facts Statement show what a rate change would do to my EMI?
For a floating-rate loan, yes. The statement shows the benchmark, your spread, the final rate and how often it resets, and the change in EMI and in the number of EMIs for a 25 bps change in the final rate.