Penal interest is an additional amount that may apply when the terms of a loan agreement are not met, such as when payments remain unpaid. The applicability and method of calculation depend on the terms governing the specific loan product.
Borrowers should carefully review their loan agreement and understand the charges that may apply if repayment obligations are not met.
Why do lenders apply penal interest or late payment charges
Additional charges may apply in situations where loan terms are not followed.
Examples may include:
- Delayed EMI payments.
- Outstanding amounts remaining unpaid.
- Other circumstances specified in the loan agreement.
The circumstances in which these charges apply differ between loan products and lenders. Customers should refer to the terms applicable to their account.
When can penal interest apply to a loan
The circumstances depend on the loan agreement and the applicable product terms.
| Situation | Possible outcome |
|---|---|
| EMI remains unpaid | Additional charges may apply according to the loan terms |
| Delay in repayment | The account may continue to remain overdue |
| Payment issue remains unresolved | Further account action may be required |
The exact treatment depends on the terms governing the account.
How is penal interest different from a late payment penalty
| Particulars | Penal interest | Late payment penalty |
|---|---|---|
| Nature | Additional amount that may apply in certain situations | Charge that may apply for delayed payment |
| Applicability | Depends on loan terms | Depends on loan terms |
| Amount | Product-specific | Product-specific |
| Timing | Depends on the account circumstances | Depends on the payment status |
The two terms should not automatically be treated as identical.
