From interest rate and EMIs to tenure and charges, there are different aspects of a personal loan that affect you either directly or indirectly. In this situation, a Key Fact Statement (KFS) acts as your key financial guide. It presents the most crucial loan terms, including interest rates and processing charges, to help you understand the cost of your personal loan.
As earlier stated, a key fact statement outlines all the details about a personal loan, which can make reading the statement difficult. In this blog, we will understand how to read a personal loan key fact statement with ease.
A Key Fact Statement (KFS) of a personal loan is a brief document that captures all the important information of a loan in simple, easy-to-understand language. It includes the loan amount, interest rate, all the fees, repayment schedule, and any penalties.
RBI mandates all lenders to issue a key fact statement for personal loans. The aim here is to increase transparency, avoid misinterpretations, and provide borrowers the ability to make informed choices prior to entering into a loan agreement.
The loan agreement is long and full of technical terminology. This is because it is a summary of your loan that details the precise amount you will pay and the regulations that will be in effect. Each of the elements that make up your KFS clarifies a certain aspect of your loan. Let’s understand it with an example of a KFS personal loan:
The sanctioned amount (the approved loan amount) and the disbursed amount (the money that actually flows into your account) will be displayed first by the KFS. For example, you could only receive about ₹1,96,460 in your bank account if your approved loan is ₹2,00,000, because the lender will deduct the processing fees (₹3,000 + GST) from the sanction amount.
Since your EMI is based on the entire approved loan amount rather than the amount disbursed, this difference is important to understand. The next point is: how is interest applied after you know how much you will really receive? This is where knowing APR and flat rates is important.
The interest rate is one of the KFS’s most confusing areas. Here’s what you should know:
| Aspect | APR (Annual Percentage Rate) | Flat Rate |
| Definition | Displays the total annual cost of the loan with interest + charges | Interests the entire principal over the tenure |
| Calculation | Using reducing balance method | Using the original loan amount |
| Transparency | More precise | It can seem less expensive, but tends to be more expensive |
| Applications in India | Personal loans | Used by banks and NBFCs |
| Effect on Borrower | Facilitates better comparison of loans | Eliminates concealed expenses |
The KFS clearly states the EMI amount with the number of instalments and the due date each month. For instance, a loan of ₹2,00,000 with a 24-month term and an annual percentage rate of 18% results in an approximate EMI of ₹9,990. The interest rate structure is closely linked to your EMI. However, you pay more than just EMIs, which include fees and GST charges. They also have an impact on your loan.
The fees and charges portion of your KFS is a crucial component. You have to pay these one-time or ongoing expenses on top of your EMIs. The following are the most typical fee types you’ll come across:
Therefore, while evaluating loan offers, always consider the whole cost after GST. After that, you can determine the loan’s true affordability.
Prepayment refers to paying an additional sum (in addition to your normal EMI) towards your outstanding principal. This minimises your loan balance and, as a result, the total interest you’ll pay over time. Foreclosure is the process of fully closing a loan before its planned termination date by paying off the whole outstanding amount plus any applicable charges, all at once. Thus, your KFS should clearly state that:
For instance, some lenders charge 3-5% of the outstanding balance, while others provide free prepayment after 12 months. These regulations are significant because they impact your ability to make early repayments. You should keep an eye out for any red flags in your KFS, such as excessive restrictions.
Here is how you can recognise warning signs in your key fact statement:
Key Fact Statement of a personal loan serves as a financial safety net. The document outlines every minute detail to help you make a wise selection and pick the most affordable loan. It also helps you prevent expensive mistakes by carefully examining EMI, fees with GST on loan costs, and prepayment regulations. This is why you must always analyse warning signs before signing.
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1. Do all lenders provide a key fact statement for a personal loan?
Yes. RBI mandates all banks, NBFCs, and digital lenders to provide a key fact statement for all personal loans they approve.
2. How does the sanctioned amount differ from the disbursed amount?
A sanctioned amount is the total amount a lender approves based on your eligibility. In contrast, a disbursed loan amount is the actual sum credited to your account after deducting processing fees and other charges.
3. What makes the Annual Percentage Rate (APR) more expensive than a flat rate?
The annual percentage rate (APR), which includes processing fees, insurance premiums, and other expenses in addition to the basic interest rate, represents the true cost of borrowing.
4. Are personal loan EMIs subject to GST?
No, GST does not apply to principal or interest. It only applies to loan-related charges like processing fees, documentation fees, or foreclosure fees.
5. What happens if I don’t pay my personal loan EMI on time?
Your credit score will be lowered, and you will also attract penalties if you don’t pay your personal loan EMIs on time.
6. How can I determine if the personal loan charges are legitimate?
You must compare APRs, processing charges, foreclosure fees, and more from different lenders before choosing a lender that offers an affordable personal loan.
7. Is a poor credit score a barrier to obtaining a personal loan?
Yes, lenders often consider a low credit score as riskier, which can hinder your ability to get a personal loan.
8. Are top-up personal loans covered under KFS rules?
Yes. According to the Key Fact Statement (KFS) requirement of RBI (effective October 1, 2022, and revised in 2023-24), a KFS should be part of all retail and MSME loans, and this also applies to top-up personal loans.
9. Are insurance premiums included in the KFS?
Yes, the KFS needs to make explicit the conditions and costs if the lender includes insurance with the loan. Additionally, you are free to get insurance from outside sources.
10. After signing the KFS, is there a cooling-off period?
After a loan is signed, some lenders give a brief window (usually 48–72 hours) for cancellation or reconsideration.
