Penal Interest

What does it mean?

In case instalments are not being paid by the borrower as per the loan contract, then a penal interest may be levied by the lender. Penal interest rates are generally decided during contract negotiation and are charged as per the terms. 

These are charged on greater loan amounts. Penal interest is dependent on your credit score. The lower your credit score goes, the higher your penal interest will rise. 

Points to remember: 

  • Penal interest can be removed if you can negotiate with your issuer.
  • Similarly, if regular payments for over six months are made, you are eligible to request for your interest to be reset to the pre-penalty rate.
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