It is well known that personal loans become our saviour on occasions when urgent funding becomes the call of time. Because of being fast in processing, a personal loan can help us to fight financial urgencies. The benefits of a personal loan are numerous and hence this is the most availed financial product of the present credit market.

When we apply for a personal loan, we enquire the interest rate, processing fee documentation fee etc. But most of the existing as well as potential personal loan borrowers are unaware of a kind of charge that most of the borrowers have to pay. Today we will learn about the most overlooked charge of a personal loan- Indicative Broken Period Interest. This is kind of charge which is levied on most of the borrowers but sadly only a few of them notices this payment. Let’s understand an indicative broken period better.

What is an Indicative Broken Period?

An indicative broken period is the time gap between the disbursement of a personal loan and the time when the payment of EMI starts. Banks charge interest on the broken period which is called broken period interest.  For example, the EMI of a particular personal loan has to be debited on the 5th of every month. Let’s say the loan has been disbursed on 1st of February, so on the 5th of February, you will have to pay interest of 5 days i.e. 1st to 5th February. The interest which you pay on 5th February does not include on your total outgo of the loan. Your EMI deduction will start from 5th of March onwards. In this way, the payment which you paid on the 5th of February was not considered towards loan repayment.

Why It is Important to Understand the Broken Period Interest?

As most of the borrowers are not aware of the broken period interest rate, banks may intentionally delay the disbursement of the loan to earn more on the broken period interest rate. Let’s take the previous example once again to understand how one may be cheated by lenders.

In the first example, the loan was disbursed on the 1st of February and the borrower paid interest of 5 days. If the bank delays the disbursal of the loan and disburses it on 10th of February, the borrower has to pay broken period interest of 25 days (i.e. 10th February to 5th March) on 5th of March. Hence, the actual loan repayment will start from 5th April onwards. All the amount the borrower paid for this broken period is the profit of the lender.

How to Protect Yourself?

Knowledge is the key to every problem. So make your knowledge your shield against being cheated. Before the loan is disbursed, count the number of days you need to pay the broken period interest. If it is too long, you can request your lender to alter the EMI deduction date or postpone the disbursal of the loan. Both of the methods will help you to save in paying indicative broken period interest.