Penal interest is an additional amount that may apply in certain situations 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 loan terms and the product involved.
Borrowers should carefully review their loan documents and understand the charges that may apply if the repayment terms are not followed.
Why is penal interest charged
Penal interest may apply when a loan account does not operate according to the agreed terms and conditions.
Situations may include:
- Delayed payment of EMIs.
- Outstanding amounts remaining unpaid.
- Other circumstances specified in the loan agreement.
The circumstances in which penal interest applies depend on the terms governing the particular loan product.
When can penal interest apply to a loan
The circumstances vary between products and lenders. Penal interest may apply in situations specified in the loan agreement.
| Situation | Possible outcome |
|---|---|
| Payment remains unpaid | Additional charges may apply according to the loan terms |
| Delay in repayment | Account may continue to remain overdue |
| Non-compliance with loan terms | Consequences depend on the agreement |
Customers should review the terms applicable to their account.
How is penal interest different from regular interest
| Particulars | Regular interest | Penal interest |
|---|---|---|
| Purpose | Cost of borrowing | Additional amount that may apply in certain situations |
| Applicability | Applies according to the loan agreement | Depends on specified circumstances |
| Timing | Charged during the loan period | May apply when certain conditions arise |
| Amount | Product-specific | Product-specific |
The exact treatment depends on the terms and conditions of the loan.
