EMI (Equated Monthly Installment) bounce charges can pose major financial risk for borrowers. It happens when your scheduled EMI payment does not go through for many reasons. This adds a little cost, penalties, and the potential of lowering your credit score. In this blog post, we will look at what EMI bounce charges are, why bounce charges apply, what happens with them, and how you can avoid them.
What Are EMI Bounce Charges?
To put it down in simple words, EMI bounce charges are the fees that you will need to pay banks and institutions upon failure of EMI payments. Failures typically happen when the borrower cannot cover the scheduled EMI because the amount deposited in the bank is insufficient. EMI bounce charges serve as a small amount of compensation to the lender for the inconvenience caused to the lender and as a deterrent against habitual defaults. Bounce charges apply when the lender is unsuccessful in collecting the borrower’s scheduled payment using auto-debit or another payment method.
Common Reasons for EMI Bounce Charges
- Low Funds in Bank Account
One of the most common reasons for an EMI bounce is not having enough balance in the bank linked to the loan. If your bank account balance is greater than the EMI amount on the payment due date, the bank will not pay the EMI, and, therefore, it constitutes a bond. The bank would, therefore, charge you EMI bounce fees, and they might even charge you accrued late payment fees.
- Banking Errors and Technical Glitches
Depending on the banking system or, in some cases, problems with processing your EMI payments, these can arise from time to time. Examples could include server outages, failed transactions, or problems with automatic payments. These problems are rare, but they occasionally lead to EMI failures, and such errors may still lead to a bounce.
- Expired or Wrong Auto-Debit Mandate
Borrowers will usually be required to establish an auto-debit mandate (for EMI payments). If the auto-debit mandate has expired or there are incorrect details in the ECS (Electronic Clearing Service), the EMI payment will not be processed, and you will have a failed payment and a bounce charge from the bank or lender.
- EMI Bounce Charges by Banks and Financial Institutions
There are different policies and charges by banks and financial institutions for EMI bounces. The table below compares the charges of some leading banks and NBFCs.
How EMI Bounce Charges Differ Across Banks
When EMI (Equated Monthly Installment) payments become unsuccessful due to insufficiencies of funds or many other reasons, banks usually throw a bounce charge as a form of penalty. The bounce charge amounts levied by banks will vary greatly from one bank to another.
| Bank Name | EMI Bounce Charges | Additional Notes |
| SBI (State Bank of India) | ₹350 for a single bounce. | Charges can depend on the type of loan as well as the method of repayment. GST is applicable. |
| HDFC Bank | ₹400 to ₹500 for every instance. | This varies in terms of the loan agreement. It can include late payment charges too. |
| ICICI Bank | ₹500 for a single EMI bounce. | This is a fixed penalty. You could be paying additional interest if your EMI is overdue. |
| Axis Bank | ₹450 for every failed transaction. | The charges here depend on the type of loan you are taking. |
Why Avoiding EMI Bounces Is Important?
- Each missed EMI will have an adverse impact on your credit history.
- The lenders may charge four or even five times the penal interest for an overdue EMI.
- Repeated EMI defaults can lead to rescheduling the loan or restructuring the loan
To avoid bounce charges, ensure adequate balance in your account before the EMI due date and consider setting up auto-debit mandates for seamless payments.
Additional Penalties and Late Payment Fees
- Penal interest: A higher interest rate on the outstanding loan amount.
- Late payment fees: Fees that accumulate for each day the EMI remains unpaid.
- Legal charges: In extreme cases, lenders may initiate legal proceedings to recover the debt, leading to even more significant costs.
How to Avoid EMI Bounce Charges?
To prevent the financial strain of EMI bounce charges, here are some tips you can follow:
- Maintain Sufficient Balance Before Due Date
The simplest way to avoid EMI bounce charges is to ensure that your bank account has sufficient funds to cover the EMI amount. Keep track of your account balance and top it up before the due date to ensure that the payment goes through smoothly.
- Set Up Auto-Pay and Payment Alerts
Set up auto-debit or standing instructions with your bank to ensure timely EMI payments. Additionally, enable SMS or email reminders for upcoming payments. These measures will help you avoid missing payments and prevent bounce charges.
- Opt for Loan Restructuring or Moratorium If Needed
If you’re facing temporary financial difficulties, consider opting for loan restructuring or a moratorium period. These options allow you to postpone or modify your EMI payments without incurring penalty charges. Contact your lender to explore these possibilities if you’re struggling with repayments.
What to Do If You Incur EMI Bounce Charges?
If you find yourself facing EMI bounce charges, here are some immediate steps you can take:
- Contact Your Bank or Lender Immediately
If an EMI bounce occurs, contact your bank or lender right away to understand the reasons behind the bounce. This will help you resolve the issue quickly and avoid additional charges.
- Pay the Outstanding EMI and Charges Promptly
Once you know the reason for the EMI bounce, make sure to clear the outstanding EMI and any bounce charges as soon as possible. Prompt payments will prevent further penalties and help you avoid damage to your credit score.
- Explore Repayment Assistance Programs
If you’re facing financial hardship, inquire about repayment assistance programs, such as payment extensions, restructuring options, or hardship programs. These programs can provide temporary relief and help you manage your loan payments more effectively.
Conclusion
EMI bounce charges can have serious financial consequences, including extra costs, damage to your credit score, and potential legal actions. To avoid these charges, it’s important to maintain sufficient funds in your account, set up auto-debit, and stay on top of your repayments. If you do incur EMI bounce charges, act quickly to mitigate their impact. By planning and managing your finances carefully, you can avoid the stress and expense of EMI bounces.
