Decoded: RBI’s Directive On Charging Penal Charges Instead Of Penal Interest

What Happens In The Case Of Delayed Payments “As per the new RBI directive, in case of delayed payments of personal loans, the penalty would be charged as penal charges (and not as penal interest that was earlier charged based on the overdue amount and the duration of the delay),” says Gulzar Didwania, Partner, Deloitte India. For instance, if you miss a payment due date on your loan, the lender can charge you a penal charge based on your loan agreement. Say the lender charges you Rs 2000. “However, there are two things to keep in mind. There can be no capitalization of this penal charge, i.e., the lender cannot charge a compound interest if it remains unpaid. Second, the lender cannot introduce any additional component to the interest rate. So, your penal charge cannot be added to your outstanding and compounded month on month. That will remain separate,” says Adhil Shetty, CEO, BankBazaar.com, a fintech company. However, bear in mind that in the case of long-term floating loans like home loans, the lender can change the spread on the loan to compensate for the risk in case the credit score goes up or down significantly.

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