Taking a personal loan can provide funds during an emergency or allow you to make a major purchase. However, repaying a personal loan brings a long-term financial commitment. When your loan repayment falls on the same date each month, scheduling timely payments can get difficult. This is where setting up an auto-debit facility for your personal loan EMIs can simplify life.
In this article, we will discuss what is automatic loan repayment, its benefits for personal loan EMIs, and tips for using this facility effectively. Read on to learn how EMI payment automation can reduce stress about missing loan repayment deadlines.
What is Auto-Debit for Loan EMI?
An auto-debit facility allows your lender to automatically deduct the loan EMI amount from your bank account on the repayment due date. Instead of you initiating monthly NEFT/RTGS transfers or post-dated cheque (PDC) payments, the lender debits the specified sum. This setup eliminates the need to remember payment deadlines or make manual transfers.
Auto-debit authorises the loan provider to withdraw funds from your linked bank account. This standing instruction remains valid until you close the loan account or cancel the auto-debit.
Banks generally do not levy extra charges for registering or using this facility. All you need to do is keep enough money in your account and give permission for the automatic payment.
Top Benefits of Auto-Debit for Loan EMI
Activating auto-debit for personal loan EMIs offers numerous benefits, including:
1. Avoid Late EMI Payment Fees
Missing an EMI deadline can attract high late payment charges (typically ranging from ₹500 to ₹1,000). It also negatively impacts your credit score and loan eligibility for all future applications.
Opting for auto-debit prevents such penalties resulting from forgotten deadlines or failed manual payments. As your lender automatically debits the EMI amount, you incur no fines for payment delays.
2. Prevent Credit Score Damage Due to Missed/Delayed Payments
Late or missed EMI payments are reported to credit bureaus such as CIBIL, Experian, CRIF High Mark, or Equifax. This can reduce your credit score, labelling you as a credit defaulter. Since financial institutions access your credit report while reviewing loan applications, a lower score diminishes your chances of loan approval.
Enabling the auto-debit facility ensures timely payments, safeguarding your credit history. As all EMIs get deducted on the scheduled dates without failure, your credit profile showcases disciplined repayment behaviour, strengthening your credit score over time.
3. Enjoy Potential Interest Savings
Some lenders offer a slightly reduced interest rate (around 0.25% to 1%) if you opt for auto-debit payments from the beginning. This benefit is not common across all lenders but may be offered as part of specific product features. For bigger loan amounts and longer tenures, this interest reduction can significantly lower your overall repayment burden.
4. Eliminate Need to Remember Due Dates
Instead of marking calendars or setting reminders, auto-debit removes the need to track EMI deadlines every month. Whether you’re travelling or caught up with work, your lender automatically processes the repayment on the fixed day.
5. Prevent Bounced Cheque/Transaction Charges
Manual payments through NEFT, RTGS, or post-dated cheques can fail due to insufficient account balance. Such failed payments may incur penalties from both the lender and your bank (typically ₹500–₹750 for a bounced cheque or failed debit transaction).
By pre-approving your lender to collect EMIs, the auto-debit facility reduces the likelihood of failed payments. Funds are directly withdrawn from your linked bank account, provided the balance is sufficient.
How Does the Auto-Debit Facility Work?
Understanding how auto-debit functions can help you use it effectively:
Mandate Registration
To initiate this facility, submit an auto-debit mandate form and a cancelled cheque from your preferred bank account. You can authorise the mandate via physical signature or electronically using OTP-based e-signing.
Some banks and lenders also support eNACH (electronic National Automated Clearing House) through net banking, making setup quick and seamless.
Schedule Setup
Your lender matches the auto-debit schedule with your loan tenure and disbursal date. For example, if your loan is disbursed on 3rd March 2023, the first EMI may be due on 3rd April 2023. The lender then sets the 3rd of each month for automated EMI collection.
Note: For some loans, the first EMI is deducted upfront on disbursal, depending on the lender’s policy.
Smooth EMI Collection
On the due date, the system verifies available balance and debits the EMI automatically. Some lenders also send SMS or email alerts 2–3 days before the scheduled debit, giving you time to maintain your balance or make necessary adjustments.
Updating Payment Method
You can cancel or update your auto-debit instructions anytime. To change the bank account, submit a new mandate with fresh account details with your lender. After processing, future EMIs will be debited from the updated account.
Pre-requisites for Enabling Auto-debit
To avoid issues with auto-debit setup, ensure the following:
- Active bank account with net banking or debit card enabled
- Sufficient balance before EMI due date
- Accurate account details submitted in the mandate
- Submit mandate updates at least 30 days before your next EMI
Link your salary account or an account with consistent inflow of cash for uninterrupted EMI deductions.
Top Tips for Using the Auto-Debit Facility
To make the most of auto-debit and enjoy the benefits of auto-debit payments, follow these tips:
- Monitor Statements: Track your bank statements on a monthly basis to confirm EMI deduction.
- Maintain Balance: Avoid large withdrawals close to your EMI date to prevent failed transactions.
- Set Personal Reminders: Add a reminder 4–5 days before the debit date to ensure sufficient balance.
- Inform About Changes Early: Notify your lender in advance if you plan to change accounts or halt auto-debit.
- Prepayment Management: If you prepay your loan or foreclose, instruct your lender to stop further auto-debits to avoid overpayment.
Summing Up
Auto-debit makes paying your EMIs easy. Your loan payments get deducted automatically on the due date, so you don’t have to stress about missing a payment. Once you set up auto-debit, all you need to do is keep a track of your bank account to ensure everything runs smoothly. For a hassle-free loan experience, activate auto-debit for your personal loan EMIs with Shriram Finance today.
