A home loan helps you swiftly finance your dream home. However, because of its massive size and extended term (often up to 30 years), many people find it difficult to keep up with frequent EMI payments. In spite of your best efforts, you may fail to make your house loan EMI payments as a result of unexpected circumstances that involve losing your employment or an unexpected illness. In this case, postponing your EMI payment will have an impact on the next month. However, there are strategies to avoid being in a scenario like this in the days to come.
What happens if you skip your personal loan EMI due date?
Personal loans have been increasingly popular as a means of financing large purchases, travelling, and consolidating debts in recent years. Personal loans, as previously said, are unsecured loans, meaning they need little verification and are granted promptly. Additionally, personal loans have a flexible payback term that runs from one to five years. The banking sector, along with additional lending institutions, offers their customers the choice of selecting the loan term that may be most suitable for them.
Regardless of the repayment period and EMI alternatives chosen by the borrower, there are several scenarios where the person receiving the loan may have difficulty paying back the EMI for the loan.
While skipping one or two EMI payments might not appear like a huge problem, it has a few negative effects.
Loan Default Classification
A great number of financial institutions, including banks, divide the repayment of loan defaults into two different groups:
Major Defaults: Major payment failures occur when an individual fails to make a payment for a duration of over 90 days. Several financial organizations avoid people with a history of major payment defaults on their credit reports. Whenever a loan account has outstanding payments for a period of over 90 days, it is classified as a non-performing asset (NPA).
Minor Defaults: Minor defaults in payments are loan accounts that have not been paid for more than 90 days. Applicants with small defaults on their loan accounts may be able to recover the adverse effect on their CIBIL score.
The Impacts of Failure to Make Personal Loan EMI Payments
CIBIL Rating: The most visible effect of missing loan payments is a drop in your credit score. To be authorized to submit an application for a loan, most lending institutions ask applicants to have a CIBIL score of 750 or higher. Skipping even one EMI payment can reduce the credit score of an applicant by 50 to 70 points.
Creditworthiness: A borrower’s credit report includes reviews about the person’s payback history in addition to the credit rating. Although an applicant’s CIBIL score is higher than 750, the credit report remarks that payment defaults are frequently a factor for personal loan refusal. Most financial institutions look at these matters on credit reports and label such people as risky who are not able to pay back the loan abiding by the loan’s terms and conditions.
Penalties: Many financial organisations and banks apply late-payment charges as penalties for customers who fail to make their EMI payments on time. The fee differs, but it is often between 1% and 2% of the EMI due.
Agents of recovery: Whenever the default period exceeds ninety days, financial institutions such as banks may, from time to time, send in agents to reclaim the loan sum as their last option. Before the loan account is marked as an NPA, the bank sends the person who borrowed the money a 60-day notice. This is a circumstance to keep away from because it can be extremely bothersome.
Because of the ease with which personal loans are available, it may be attractive to take one out to use in the case of a financial emergency. But before choosing a financial institution, utilise an online personal loan EMI calculator to calculate your preferred EMI, interest rate, and payback term based on your financial ability and cash inflow. This would help you prevent any missed payments or defaults as a result of your financial obligations or necessity.
What will you do if your home’s loan EMI is late?
The first step towards getting things on the right track and avoiding any expensive penalties is to pay the unpaid dues as soon as possible. If you are unable to pay in full, pay in installments. But don’t let it build up. The longer you wait, the greater your loan stress will be.
Inform your lending institution if you believe you will not be able to keep up your payments. You have to inform your banking institution of your circumstances and lack of ability to make payments for your EMI on time. A financial institution would give you a little grace if you had an excellent track record of repaying.
If your bank believes you will have the ability to get your finances back on track over the next 3–6 months, it might offer a temporary moratorium on the home loan.
If you are incapable of paying your EMIs due to financial constraints, you may request that the bank restructure your loan. Banks may extend your loan term to allow you to keep track of your EMIs and continue to be within your budget.
Words to Keep in Mind
Make sure your finances are in order before applying for a home loan. Develop a strategy for all types of unforeseen circumstances and “what if” scenarios and maintain an emergency fund on hand. Additionally, just in case such a circumstance develops, it is best to notify the bank. In most circumstances, banks provide various alternatives as well as adequate time and chances to help you get your money matters back on track.