How does personal loan repayment happen?

Understanding the process of personal loan repayment is essential for borrowers to manage their finances effectively and ensure timely repayment.
Repayment involves several key components and procedures that borrowers should be aware of to fulfil their obligations responsibly.

Here's how it usually works:

Equated Monthly Instalments (EMIs):

• Personal loan repayment primarily occurs through Equated Monthly Instalments (EMIs), which borrowers are required to pay on a monthly basis.
• EMIs consist of both principal and interest components, allowing borrowers to gradually repay the loan over the agreed-upon tenure.

Principal and Interest Components:

• Each EMI comprises a portion allocated towards repaying the principal amount borrowed and another portion designated for paying the interest accrued on the outstanding balance.
• This dual-component structure ensures that borrowers gradually reduce their debt while also compensating the financial institution for providing the loan.

Automatic Deductions:

• To streamline the repayment process and minimise the risk of default, EMIs are typically automatically deducted from the borrower's bank account.
• Lending institutions set up standing instructions with the borrower's bank to facilitate these automatic deductions on the specified repayment dates.

Maintaining Sufficient Balance:

• Borrowers must ensure that there is a sufficient balance in their bank account on the designated repayment dates to cover the EMI deductions.
• Insufficient funds may result in payment failures, leading to penalties, additional charges, and a negative impact on creditworthiness.

In conclusion, personal loan repayment primarily occurs through Equated Monthly Instalments (EMIs), comprising both principal and interest components.

These EMIs are automatically deducted from the borrower's bank account on specified dates, necessitating the maintenance of sufficient funds to avoid default and associated penalties.

By understanding the personal loan repayment process, borrowers can fulfil their obligations responsibly and maintain healthy financial management practices.