Late fee vs penal interest (विलंब शुल्क बनाम दंड ब्याज)
A late fee is a flat penal charge for missing a due date, while penal interest means hiking your interest rate as punishment — a practice RBI barred for loans sanctioned from 2024 onwards. Lenders may now only levy reasonable, disclosed penal charges, and cannot compound them.
Worked example
Old style: a 24% rate jumping to 27% after a missed EMI (now banned). Correct style: the rate stays 24% and you pay a one-time disclosed charge, say ₹300 + GST, exactly as listed in the KFS.