This amount acts as a buffer to ensure the repayment mandate covers all possible charges.
If a borrower repays late, extra interest, penalties, or fees may apply.
The added amount ensures that the direct debit can still collect the full balance owed, not just the loan and base interest.
Lenders can handle this in two ways:
- Set a fixed extra amount, or
- Apply a multiplier to the original mandate.
This protects against under-collection when repayment is delayed. It ensures that if a borrower incurs additional charges due to delayed repayment, the existing direct debit mandate is still valid for collecting the full amount owed, not just the principal and base interest..
Read also: All you need to know about core banking applications