Home loans are often long-term commitments and involve a huge sum of money that a lending institution grants to a borrower.
Due to unforeseen circumstances or financial commitments, borrowers may not be able to pay one or more of the monthly installments equivalent (EMI).
Jairam Sridharan, MD, Piramal Capital and Housing Finance, points out, “Lenders do not like such surprises and in such a scenario, it is ideal to keep the lender informed about the situation beforehand.”
While some leniency can be exercised for a single fault, experts say multiple faults can have far-reaching consequences, both financially and reputationally.
- Credit score: A borrower’s credit score often drops when they default on a home loan. Since credit scores are a crucial element in determining an individual’s eligibility for a home loan, such a default can make it very difficult to obtain another home loan or any other loan.
- Impact on co-applicants: The impact of default on a loan often extends to co-applicants of such a loan and is not limited to the primary applicant. “A poor credit score caused by default can also make it difficult for a person to get a suitable job or even rented accommodation,” Sridharan adds.
- Late penalties : Borrowers often overlook other home loan costs while choosing the cheapest home loan available. An important detail, says Sridharan, “are the late payment fees, which means the borrower is required to pay a penalty each time he does not pay the EMI on time. The fees vary from lender to another and hence it is essential to check the same when applying for a loan.
- Complementary loans and other loans – As a borrower, it is important for you to maintain a healthy EMI payment record because then you can opt for different types of complementary loans such as personal loans, contingencies, home construction loans, renovation, improvement and extension of the house. the future. A default may make it difficult to access additional loan facilities.
In the long term, experts say that a default on a home loan can lead to a situation where the borrower faces financial losses, unemployment, erosion of financial security and creditworthiness.
“If a borrower is aware of an event that may pose a risk of default, they should speak to the lender about the current situation. The lender may in turn allow a standstill of a few months to settle dues or restructure the loan in increasing the duration, which could reduce the amount of EMI,” says Sridharan.