DYK: Lender may deduct EMI despite full repayment of loan
Lag in communication between the bank and ECS centre can lead to an EMI debit despite full repayment
Say, you took an education loan from a bank, or any other financial institution, in 2012 and the repayment tenor of the loan was seven years. In July 2014, however, you had some money and you made a prepayment towards the loan. You then receive a copy of the payment receipt of full loan repayment on 1 August. Once the loan was paid in full, you assumed that you don’t have to pay any more equated monthly instalments (EMI) from the next month, i.e. August. However, the bank still deducted the EMI amount on 3 August despite you having made the full repayment. Do you know when and why this can happen?
Repayment date
When you take a loan—personal, housing or education—an electronic clearance service (ECS) is activated by your bank for monthly deduction of EMI from your bank account till the end of the loan tenor. After prepayment, the loan clearance details gets reflected in the banking system. Once the due diligence on foreclosure is done, the bank alerts the ECS processing centre and deactivates the ECS mandate. The lag in communication between the bank and the ECS centre can lead to an EMI debit despite full repayment. If the repayment happens around the ECS debit date and by then if the reconciled accounts don’t reflect the repayment, the ECS will still go to the processing centres of the Reserve Bank of India. The details of loan clearance have to reach the ECS centre before the ECS request date. For instance, if the EMI debit happens on 9th of every month, the bank usually sends the ECS request on the 5th of every month. So in our example, if you had closed the loan on 1 August, the information would have reached the banking system by 6 August. But since the debit request for 9 August would have already reached the ECS centre, EMI debit was affected despite full repayment.
What should you do?
There is no need to panic if the EMI debit happens from your bank account despite full repayment of the loan as banks refund the debited amount. However, the time taken for the refund varies from bank to bank and range can take anywhere between 5 days to 30 days. If you expect a debit and withdraw all money from your account before the bank debits money, the bank may charge a penalty for EMI default, which definitely creates inconvenience for borrowers. The solution is to get the account cleared before the ECS date since banks are constrained to stop the ECS instruction. Hence, if you repay your loan a few days after the ECS debit cycle, the chances of excess EMI debit is less. However, if it happens around the ECS debit cycle, you may have to go through an excess debit of EMI.
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