UPI MDR: Will there be a fee for paying vehicle or home loan EMIs via UPI? Who will pay it?

UPI is being widely used across India today. This is why the announcement regarding the application of the Merchant Discount Rate (MDR) has caused some concern among the general public. The good news is that no fee will be charged on UPI payments below ₹2,000, nor will there be any charge for person-to-person payments. Some people are wondering whether MDR will apply when paying monthly EMIs for car, bike, or home loans via UPI apps like Google Pay, PhonePe, or Paytm. If it does apply, who will bear the cost?

First, it is important to understand that UPI MDR will not be limited to shopping and merchant payments alone. If loan repayments and EMI payments are made via UPI and the amount exceeds ₹2,000, the MDR (fee) will apply. However, the positive aspect is that you will not have to pay a single extra penny from your own pocket when paying these monthly EMIs.

A flat fee of ₹5 per payment

Under the new rules, a flat MDR of ₹5 has been set for every UPI transaction exceeding ₹2,000 in the 'debt collection' (loan repayment) category. If you transfer a vehicle EMI of ₹5,000 or a home loan repayment of ₹25,000 to an NBFC or a bank via UPI, this ₹5 charge will be triggered for that transaction. Since MDR is essentially a merchant-side fee, it clearly means that the amount cannot be directly collected from the customer repaying the loan. This cost must be borne by the lending bank, NBFC, or their recovery and collection agency.

The same arrangement applies to credit card bill payments as well. The cost of payment processing is borne by the card-issuing company—on behalf of the merchant bank—rather than the ordinary customer. If you have set up UPI Autopay or an e-mandate for your EMI payments, there is good news for you. The National Payments Corporation of India promotes digital automation; therefore, the ₹5 MDR on Autopay collections will not apply to your auto-debit EMI, regardless of whether the amount exceeds ₹2,000.

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