A Bank of Baroda education loan customer encountered an issue where their ₹4 lakh prepayment was incorrectly processed as advance EMIs rather than principal reduction. This banking error highlights common loan servicing problems and available resolution mechanisms.
A borrower with an ₹8 lakh education loan from Bank of Baroda made a ₹4 lakh lump sum payment in March 2025, clearly intending it as a principal prepayment to reduce interest charges. However, the bank processed this payment as advance EMIs without informing the customer or providing options. This processing method prevents the borrower from achieving the intended benefit of reducing their outstanding principal balance and associated interest costs.
According to banking expert Dev Patel from 1 Finance, such misallocations typically occur when banks default to advance EMI processing if explicit instructions aren't provided or payments are made close to EMI due dates.
Education loans in India explicitly permit prepayments without penalty charges. The 2022 Model Educational Loan Scheme by the Indian Banking Association reinforces that borrowers can prepay either partially or fully for principal reduction without penalties. This regulatory framework means Bank of Baroda should have applied the ₹4 lakh payment directly to the principal balance rather than treating it as advance EMIs.
The recommended approach begins with visiting the Bank of Baroda home branch. Borrowers should prepare a clear letter for the Branch Manager containing their loan account number, payment details, and proof of the ₹4 lakh transaction. The letter must explicitly state that the payment was intended for principal prepayment and request reversal of the misapplication with reallocation to outstanding principal.
Customers should obtain a stamped acknowledgement copy as proof of submission and request a revised repayment schedule reflecting the reduced principal.
Read More: SBI Eyes Top 10 Global Bank Spot by Market Cap in 5 Years!
If the branch visit doesn't provide satisfactory resolution within 7 to 10 working days, borrowers should escalate through the Bank of Baroda Grievance Portal. This online complaint should detail the branch visit and include all relevant documentation. The formal complaint process creates an official record and timeline for resolution.
After 30 days without resolution from the bank, customers can approach the Reserve Bank of India Banking Ombudsman scheme. This mechanism resolves customer complaints against banks and requires comprehensive documentation of all loan details, payment records, and correspondence history. The Ombudsman serves as an independent authority to resolve banking disputes when internal bank processes fail.
The Bank of Baroda education loan prepayment misallocation case demonstrates the importance of clear payment instructions and borrower rights awareness. With proper documentation and systematic escalation through branch visits, grievance portals, and ultimately the RBI Ombudsman, customers can successfully reverse incorrect EMI advance processing and achieve intended principal reduction benefits.
Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in securities are subject to market risks. Read all related documents carefully before investing.
Published on: Jul 28, 2025, 1:58 PM IST
Team Angel One
We're Live on WhatsApp! Join our channel for market insights & updates
Get the link to download the App
