3.2.4 Specifying Grace Days to Penalty

The grace period specifies the period within which the penalty interest (if one has been defined for the product) is not applied, even if the repayment is made after the due date. This period is defined as a specific number of days and begins from the date the repayment becomes due.

Penalty interest is applied on repayments made after the grace period. However, the penalty interest is calculated for the entire period it has been outstanding (that is, from the date the payment was due).

When Payment Delay Days is given, then Grace Period starts from Pay By Date. If payment is made after Grace Period, then the penalty starts from Pay By Date.

Example

An interest repayment on Mr. Brian Williams loan is due on 15 June 1998. You have specified a grace period of 5 days, after which a penalty interest of 2% is imposed.

Now, if Mr. Williams makes the interest payment on 18 June, which falls within the grace period, he need not have to pay penal interest.

But if he makes the payment after the expiry of the grace period, that is, after 20 June, then he is charged penal interest right from 16 June and not from 20 June, the day the grace period expires.

If the payment is made within the grace period, normal interest is applied as of the scheduled repayment date.