2.1.6 Specify Grace Days to Penalty

This topic describes how to specify grace days to penalty.

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

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

For example, an interest repayment on a borrowing deal 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 the customer makes the interest payment on 18 June, which falls within the grace period, he/she will not have to pay penal interest. But if the customer makes the payment after the expiry of the grace period, that is, after 20 June, then he/she is charged penal interest. It is calculated from 16 June onwards and not from 20 June.

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

• Grace Days for Multiple Penal Components
  This topic describes the systematic instructions to define the grace days applicable for multiple penal components.