diff --git a/fineract-progressive-loan/src/main/java/org/apache/fineract/portfolio/loanproduct/calc/ProgressiveEMICalculator.java b/fineract-progressive-loan/src/main/java/org/apache/fineract/portfolio/loanproduct/calc/ProgressiveEMICalculator.java
index c941569e72d..d66b37aa96d 100644
--- a/fineract-progressive-loan/src/main/java/org/apache/fineract/portfolio/loanproduct/calc/ProgressiveEMICalculator.java
+++ b/fineract-progressive-loan/src/main/java/org/apache/fineract/portfolio/loanproduct/calc/ProgressiveEMICalculator.java
@@ -257,10 +257,22 @@ public PeriodDueDetails getDueAmounts(@NotNull ProgressiveLoanInterestScheduleMo
         ProgressiveLoanInterestScheduleModel recalculatedScheduleModelTillDate = recalculateScheduleModelTillDate(scheduleModel,
                 periodDueDate, targetDate);
         RepaymentPeriod repaymentPeriod = recalculatedScheduleModelTillDate.findRepaymentPeriodByDueDate(periodDueDate).orElseThrow();
-        boolean multiplePeriodIsUnpaid = recalculatedScheduleModelTillDate.repaymentPeriods().stream().filter(rp -> !rp.isFullyPaid())
-                .count() > 1L;
-        if (multiplePeriodIsUnpaid && !targetDate.isAfter(repaymentPeriod.getFromDate())) {
-            repaymentPeriod.setEmi(repaymentPeriod.getOriginalEmi());
+        List<RepaymentPeriod> list = recalculatedScheduleModelTillDate.repaymentPeriods().stream().filter(rp -> !rp.isFullyPaid()).toList();
+        long count = list.size();
+        boolean multiplePeriodIsUnpaid = count > 1L;
+        if (!targetDate.isAfter(repaymentPeriod.getFromDate())) {
+            if (multiplePeriodIsUnpaid) {
+                repaymentPeriod.setEmi(repaymentPeriod.getOriginalEmi());
+            } else if (repaymentPeriod.isFullyPaid() && count == 1L) {
+                repaymentPeriod.setEmi(MathUtil.min(repaymentPeriod.getOriginalEmi(), //
+                        recalculatedScheduleModelTillDate.getTotalDuePrincipal() //
+                                .minus(recalculatedScheduleModelTillDate.getTotalPaidPrincipal()) //
+                                .add(recalculatedScheduleModelTillDate.getTotalDueInterest()) //
+                                .minus(recalculatedScheduleModelTillDate.getTotalPaidInterest()) //
+                                .add(repaymentPeriod.getPaidPrincipal()) //
+                                .add(repaymentPeriod.getPaidInterest()),
+                        false)); //
+            }
         }
 
         return new PeriodDueDetails(repaymentPeriod.getEmi(), //
diff --git a/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanInterestRefundTest.java b/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanInterestRefundTest.java
index a39b2bd58a9..40e95146dc5 100644
--- a/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanInterestRefundTest.java
+++ b/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanInterestRefundTest.java
@@ -48,6 +48,7 @@
 import org.apache.fineract.integrationtests.common.ClientHelper;
 import org.apache.fineract.integrationtests.common.Utils;
 import org.apache.fineract.integrationtests.common.loans.LoanTransactionHelper;
+import org.apache.fineract.portfolio.loanaccount.domain.LoanStatus;
 import org.apache.fineract.portfolio.loanproduct.domain.PaymentAllocationType;
 import org.junit.jupiter.api.Assertions;
 import org.junit.jupiter.api.BeforeAll;
@@ -1574,4 +1575,62 @@ public void verifyMerchantIssuedRefundPostingForBackdatedLoan() {
             ); //
         });
     }
+
+    /**
+     * Goal: test Merchant issued Refund does not cause infinite loop in special case of 2 transaction. * interest
+     * recalculation should be on. * merchant issued refund payment allocation should set to Last installment * default
+     * payment allocation should set to Next Installment Make a repayment to repay first instalment on its due date Make
+     * MerchantIssuedRefund to fully repay almost all the installments. 2nd installment should be fully unpaid and 3rd
+     * installment should have less outstanding principal portion than the total outstanding interest on the loan ( 2nd
+     * installment ). Make a 2nd MerchantIssuedRefund equal to remaining principal. Verify Repayment schedules and
+     * transactions. Verify that the loan become overpaid by the amount of 2nd interest refund.
+     */
+    @Test
+    public void verifyMerchantIssuedRefundInTwoPortion() {
+        runAt("1 February 2025", () -> {
+            Long loanProductId = getOrCreateLoanProduct();
+            Long loanId = applyAndApproveProgressiveLoan(client.getClientId(), loanProductId, "1 January 2025", 100.0, 26.0, 6, null);
+            Assertions.assertNotNull(loanId);
+            disburseLoan(loanId, BigDecimal.valueOf(100.0), "1 January 2025");
+            loanTransactionHelper.makeLoanRepayment(loanId, "Repayment", "1 February 2025", 17.94);
+            loanTransactionHelper.makeLoanRepayment(loanId, "MerchantIssuedRefund", "1 February 2025", 66.41);
+            verifyTransactions(loanId, //
+                    transaction(100.0, "Disbursement", "01 January 2025"), //
+                    transaction(17.94, "Repayment", "01 February 2025"), //
+                    transaction(66.41, "Merchant Issued Refund", "01 February 2025"), //
+                    transaction(1.47, "Interest Refund", "01 February 2025") //
+            );
+            verifyRepaymentSchedule(loanId, //
+                    installment(100.0, null, "01 January 2025"), //
+                    installment(15.73, 2.21, 0.0, true, "01 February 2025"), //
+                    installment(17.61, 0.33, 16.47, false, "01 March 2025"), //
+                    installment(12.84, 0.01, 0.26, false, "01 April 2025"), //
+                    installment(17.94, 0.0, 0.0, true, "01 May 2025"), //
+                    installment(17.94, 0.0, 0.0, true, "01 June 2025"), //
+                    installment(17.94, 0.0, 0.0, true, "01 July 2025") //
+            );
+            loanTransactionHelper.makeLoanRepayment(loanId, "MerchantIssuedRefund", "1 February 2025", 16.39);
+            verifyTransactions(loanId, //
+                    transaction(100.0, "Disbursement", "01 January 2025"), //
+                    transaction(17.94, "Repayment", "01 February 2025"), //
+                    transaction(66.41, "Merchant Issued Refund", "01 February 2025"), //
+                    transaction(1.47, "Interest Refund", "01 February 2025"), //
+                    transaction(16.39, "Merchant Issued Refund", "01 February 2025"), //
+                    transaction(0.36, "Interest Refund", "01 February 2025"), //
+                    transaction(2.21, "Accrual", "01 February 2025") //
+            );
+            verifyRepaymentSchedule(loanId, //
+                    installment(100.0, null, "01 January 2025"), //
+                    installment(15.73, 2.21, 0.0, true, "01 February 2025"), //
+                    installment(12.51, 0.0, 0.0, true, "01 March 2025"), //
+                    installment(17.94, 0.0, 0.0, true, "01 April 2025"), //
+                    installment(17.94, 0.0, 0.0, true, "01 May 2025"), //
+                    installment(17.94, 0.0, 0.0, true, "01 June 2025"), //
+                    installment(17.94, 0.0, 0.0, true, "01 July 2025") //
+            );
+            GetLoansLoanIdResponse loanDetails = loanTransactionHelper.getLoanDetails(loanId);
+            verifyLoanStatus(loanDetails, LoanStatus.OVERPAID);
+            Assertions.assertEquals(0.36, loanDetails.getTotalOverpaid());
+        });
+    }
 }