When you take a loan like a home loan or personal loan, you are required to pay its EMI on a fixed date every month. We are generally so busy with our personal and professional lives that it can be challenging to remember the EMI date. Missing EMI date could result in a penalty, and regular late payments can also affect your credit rating.

To eliminate this inconvenience, lenders in India now offer Electronic Clearing Service (ECS) facility to the borrowers. Let us have a look at what this facility is and how it works.

What is ECS?

ECS was launched by the RBI for facilitating bulk transfer of funds from one bank account to another bank account. Loan providers use this facility to debit loan EMIs on a fixed date from the bank account of the borrower.

This is done with the help of a clearinghouse. In India, ECS debit is mostly handled by the NACH (National Automated Clearing House) which works under NPCI (National Payments Corporation of India).

How Does ECS Works?

When you take a loan, you are required to sign an ECS payment mandate. This mandate gives the authority to the clearinghouse to debit the monthly EMI from your bank account and credit the same into your loan account, or lenders account on a fixed date.

This mandate will have detailed information about your bank account, bank branch, ECS debit date and amount.

How to Stop ECS?

If for some reason you want to stop ECS debit from your bank account, you need to inform the same first to your loan provider. A written application needs to be submitted in a format prescribed by the loan provider. Once this is done, you also need to inform the same to your bank by submitting a written application.

Submit the application to the loan provider as well as your bank at least a couple weeks before your EMI debit date so that the necessary steps can be taken in time.

Things to Keep in Mind When Using ECS

While the ECS facility eliminates the need for you to issue a cheque or go to an online payment gateway for regular payments like loan EMIs, you should make sure that your bank account has adequate funds for clearing the ECS.

If at all you do not have adequate funds in your bank account and the ECS bounces, you will mostly be required to pay a penalty which can be as high as the penalty you pay for a bounced cheque. So, be a little cautious while using this facility for automating your EMI payments.

Learn more about Mutual Funds for a good personal financial management.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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