Summary of this article
KFS summarises loan terms, costs and repayment details
Mandatory for retail and MSME loans from October 2024
2025 digital lending rules strengthen disclosure and comparison
A Key Fact Statement (KFS) is a standardised summary of a loan agreement that lenders must present to borrowers during the loan offering process. It sets out the key financial and contractual information in an easy-to-understand format so that borrowers don’t have to rely solely on long loan agreements. It generally contains the loan amount, the rate of interest, loan term, repayment frequency, fees, and the total cost of credit. It basically aims to simplify the understanding and comparison of loan terms.
The Need For KFS
The Reserve Bank of India (RBI) introduced KFS in 2024 in a bid to improve transparency. Lending rates are not always clear to the borrower due to the complex structure of fees and charges. The KFS ensures that information is standardised across banks and upfront. This reduces hidden charges and allows consumers to shop around for loans.
How Does KFS Help Borrowers?
KFS plays a key regulatory role because it helps in bringing together different pieces of financial information to a common format. For instance, including the annual percentage rate (APR) into the KFS makes the information consistent, as it includes the rate of interest along with all other additional costs, such as processing and documentation charges.
Having a mandatory three-day cooling-off period also ensures that no high-pressure selling tactics can be used against the borrower, and sufficient time is available for studying the amortisation schedule. In addition to this, KFS is a legally-mandated ceiling on costs, as lenders cannot charge any amount that has not been specified in it.
What Does KFS Contain?
KFS offers a summary of the loan. It includes:
Loan amount and tenure
Fixed or floating rate of interest
APR or the cost of borrowing
Repayment schedule
Fees, penalties and other costs
Other fees (insurance, legal fees)
APR is important as it takes into account all expenses to borrow money, rather than just the interest.
RBI’s New Guidelines On KFS
After its notification in 2024, the KFS framework has been further reinforced by the new regulations for digital lending. Some important regulatory requirements are:
KFS applies to all retail and MSME term loans from October 1, 2024 onwards.
KFS must be disclosed before signing the loan contract and not after disbursement.
There must be sufficient time for review (typically three working days for most loans) before accepting the loan offer.
The document should be prepared in the prescribed format and must be provided in the language understood by the borrower.
No fee should be charged from customers that are not specified in KFS.
Under the Digital Lending Directions, 2025, lenders are mandated to provide KFS at the stage when the loan is being offered; this is sacrosanct, particularly during digital lending processes. In situations where there are multiple lenders, it becomes mandatory for borrowers to view loan offers, alongside KFSs.
