Home loans come with a great responsibility to repay EMIs for a very long time. Home loan borrowers are generally advised to be financially disciplined and never miss EMIs. Yet, sometimes during such a long repayment period, they may miss one or more EMI payments. How does this affect you and what should you do next? Here are ways to help you overcome the perils as quickly as possible.
How does this affect you?
Missing one or two EMIs but reimbursing the same within three months of the scheduled payment date falls into the category of minor defaults. However, if you failed to pay EMIs and were unable to reinstate payment within three months, it falls into the major default category.
Missing an EMI payment for a home loan falls under the category of minor defaults and can have an immediate impact on your credit score. You may notice a drop in your CIBIL score of around 40 to 80 points, depending on the stage of your loan, the leverage you have taken and other factors. Missing the EMI can cost you a late penalty of up to 2% of the EMI, subject to a minimum amount depending on the terms and conditions of your loan.
Your credit score can be restored once you pay the EMI and regularly maintain it in the future, but the instance of non-payment will reflect in your credit file. This can put a question mark over your creditworthiness every time a lender accesses your credit report. A major default can hamper your chances of transferring the home loan to another bank, even after repaying the EMIs in a timely manner in the future. After you default, the bank usually sends a notice to the borrower. Failure to comply with the notice may result in a bank action against you which may result in the auction of the mortgaged property. By delaying the EMI payment, you may also see an increase in the applicable interest rate as your CIBIL score may drop significantly.
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Here’s what you can do
After missing an EMI payment, you should immediately notify your bank and explain the reason. You should try to repay the EMI without further delay. If you really forgot to repay the EMI, to avoid such instances in the future, you should take a measure like having your bank account linked for automatic debit for EMI. If you have not made the payment due to a difficult financial situation such as loss of job or income, you should quickly develop a plan to deal with the situation financially. You can switch to your emergency fund, start looking for a new job and, if necessary, liquidate some of your low-yielding investments to avoid further defaults.
To lessen the impact, you can ask the lender to increase the repayment term of the loan to reduce the burden of IME and get some relief in an adverse financial situation. You can also ask your bank to authorize a moratorium of up to 6 months to avoid a payment default while explaining the situation of job loss or any other financial difficulty in which you may find yourself. This can give you some time to focus on finding solutions. If the condition worsens, you can move to a smaller rental home while renting out your existing home. Differential rent can give you financial support to repay the EMI loan without losing your home.
Adhil Shetty, CEO of Bankbazaar.com, says, “If you don’t pay your EMIs on time, it has a direct impact on your credit score. Banks can also impose penalties depending on the delay in repayment of the EMI. The best thing to do in case you missed the refund deadline due to an oversight is to pay the outstanding EMI immediately. If you can’t manage repayments due to short-term financial emergencies, talk to your lender and find a solution.
Get your loan account back on track
It is essential to reduce your non-essential expenses and focus on timely repayment of home loan EMIs. Make a budget that suits your current financial situation and slowly try to improve it. After defaulting on three EMIs, getting a new loan can be tough, but it’s not the end of the road for you.
It is advisable to plan your finances without being perplexed due to a bad financial situation. A well-planned financial strategy will make things normal for you.