How To Avoid Penalty On Your Home Loan EMI When You Change Your Savings Bank Account

We cannot think of repaying a loan without Equated Monthly Instalments (EMIs). By depositing the required sum every month, EMIs ensure that the loan repayment is regular, systematic and timely. It is done in two ways: through post-dated cheques (pdcs) and electronic clearing system (ECS). Let us consider the first method here.

Anuj has taken a home loan of Rs 11 lakh for 15 years, on which he is paying an EMI of Rs 10,500. Like other banks, his bank too asks for the next 12 months' post-dated cheques from borrowers in advance at the start of the financial year, so Anuj has already issued the pdcs for the next several months. But he has to change his bank account mid-way due to some reason, and this has made his pdcs void. Now, Anuj wants to replace these cheques as early as possible so as to avoid any cheque bounce charges and save from defaulting on his payments.

Analysis
Anuj's worry is to replace the post-dated cheques without any delay so that the repayment process continues smoothly. If he follows the procedure prescribed by banks, he can squeeze through without getting hurt, financially.

What is cheque swapping facility?
The problem encountered by Anuj is generally seen in the case of long repayment periods. The solution for this problem would be cheque swapping facility. Anuj should check with his bank whether it allows such facility. This is a facility or service where he can replace the existing post-dated cheques with new post-dated cheques for the purpose of the repayment. The fresh cheques can come from a separate account or even another bank, and thus the repayment continues.

If the cheques are not replaced….
Anuj cannot cancel or issue stop-payment instructions with respect to post-dated cheques for the amount outstanding, so he will have to ensure that the cheques are replaced. Timelines are important for cheque realisations, thus a holdup can result in bouncing of cheques, which further can lead to levying of additional cheque bounce charges. Cheque bounce charges vary from bank to bank, and are generally in the range of Rs 250 to Rs 400.

What is the prescribed procedure?

For replacing post-dated cheques, Anuj needs to take a prior approval from the bank. He will have to make an application followed by instructions to replace the earlier cheques with the new ones that have been sent across. Some care is also required because Anuj will have to ensure that the use of the old cheques is cancelled otherwise there could be two cheques coming up for payment to him. In addition, he might need to provide verification of signatures by the new banker.

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Will Anuj incur any charges in the process?
Anuj will have to make a flat payment, called swapping charges, of around Rs 500 when the swap is initiated. In some cases, there could be a cost per cheque with a minimum payment to be made.

What should Anuj do to prevent such things in future?
Anuj can ensure that there is a direct payment that is made each month and this can be done by giving instructions to the bank to transfer the EMI amount each month to the lender's account. The other way is to have a separate account that is maintained for the loan repayments from which the post-dated cheques can be given so that there is no interference in the amount paid and the required balance is present.