You have obtained a loan and have already acquired the desired good. From this moment begins a new stage of collaboration with a bank or non-bank lending organization – the process of repayment of the loan. As a rule, the first installment must be paid after one month, but depending on the loan term and the agreed conditions, the payment date may be different. It is important to know what amount you will need to pay and when, as well as what will happen if you do not pay one or more installments.

The fine and the penalty, applied in case you do not pay installments, can be: Fines and late fees may be:

  1. fixed
  2. calculated as a percentage of the overdue amount (example No. 1)
  3. calculated on a progressive scale depending on the numbers of days in arrears (example No. 2)
  4. calculated as a combination of fines and penalties (example No. 3)
  5. in the form of increase in % rate
  6. in the form of a demand for early repayment.

Examples of calculating the amount of the penalty in the case of the 30 day in arrears  for a loan in the amount of MDL 10,000 with the term of 12 months and the monthly rate of MDL 888.89:

Example no. 1 – percentage of the overdu amount – 0.5% of the amount of the monthly installment for each day in arrears

0.5% x 888.89 x 30 = 133.33 (MDL)

Example no. 2 – progressively based on the number of days in arrears – up to 10 days in arrears – MDL 100, between 10 and 20 days – MDL 200, between 20  and 30 days – MDL 800

100 + 200 + 800 = 1100 (MDL)

Example no. 3 – combination of penalty and fine – 0.5% of the amount of the monthly rate for each day in arrears plus the single fine of MDL 200 for every 10 days in arrears

0.5% x 888.89 x 30 + 200 + 200 + 200 = 733.33 (MDL)

The amount of fines and penalties can sometimes exceed the amount of the loan, and the methods of collection differ from one lending institution to another.

What will happen if you do not pay the loan rate?

From 1 to 15 days – the bank or non-bank lending organization will contact you (by phone) to remind you about the need to pay the rate. Keep in mind that you can receive only one phone call and the penalty will be calculated from the first day in arrears. The average size of the penalty constitutes 0.5% of the amount of the monthly rate, but several organizations set a minimum amount, from MDL 10 to MDL 20 per day.

From 15 to 30 days – the bank or non-bank lending organization will send you an official letter asking you to pay the debt. The penalty in the amount of 0.5% of the monthly installment amount will be calculated further, moreover, it is possible to apply single fines in an average amount of MDL 200  for more than 10 days in arrears, after which for 20 and 30 days .

From 30 to 90 days – at this stage some non-bank lending organizations send debtors to third-party institutions, which may apply different rules for debt recovery, as well as change the amounts of fines and penalties. You can also be visited by the collector from credit company or bank. In the case of more than 45 days in arrears, some companies apply a fine equal to 30% of the credit balance. The penalty of 0.5% of the amount of the monthly rate will be calculated further.

More than 90 days – at this stage the case is usually sent to the court.

Strive to repay the loan on time. Even a small delay in repayment or payment of an incomplete amount will affect your credit history and next time your credit applications may be denied by banks and non-bank lending organizations.

If you know that you will not be able to pay the installment in time, contact your loan officer and inform him. Specify the options for resolving the situation.

If you have not paid several installments, but the case has not been sent to the court, you can request a credit restructuring – a review of the credit conditions, which will allow you to:

– reduce the interest rate

– extend the repayment period of the debt

– have a deferral (credit vacation)

– suspend the calculation of penalties and fines

In order to obtain the credit restructuring, prepare a letter explaining the reasons why debt repayment is not possible at the moment and request a restructuring or other convenient debt repayment option.

It is important to keep in touch with the bank or non-bank lending organization because you do not solve the situation if you refuse to accept calls and messages from lending institutions. Keep in mind that when submitting the case to the court, probably you will have to pay the appropriate costs, and the amount you will eventually pay will be bigger.

Remember that the solution can be found at any stage. Responsible banks and companies are interested in maintaining partnership relationships with the client and will offer you ways to solve the problems that have arisen.

Be informed when choosing your financial partner.

GMW March 25 – 31, 2019

www.globalmoneyweek.org

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