Home loans come with a big responsibility of repaying the EMIs for a very long time. Home loan borrowers are typically advised to be financially disciplined and never miss the EMIs. Still, sometimes in such a long repayment period, they may miss out on one or more EMI payments. How does it impact you, and what should you do next? Here are ways to help you overcome the perils as quickly as possible.
How Does It Impact You?
Missing one or two EMIs but repaying the same within three months of the scheduled payment date comes into the minor default category. However, if you have missed paying the EMIs and couldn’t reinstate the payment within three months, it comes into the major default category.
Missing out on a home loan EMI payment falls under the minor default category and can impact your credit score immediately. You may notice a drop in your CIBIL score by around 40 to 80 points, depending on the stage of your loan, leverage you have taken and other factors. Missing the EMI can cost you a late payment penalty that may range around 2% of the EMI, subject to a minimum amount depending on your loan’s terms and conditions.
Your credit score may reinstate once you pay the EMI and service the same regularly in the future, but the non-payment instance will reflect in your credit report. It can put a question mark on your creditworthiness whenever a lender accesses your credit report. A major default may hinder your chances of transferring the home loan to another bank even after you timely repay the EMIs in the future. After you default on repayments, the bank usually sends a notice to the borrower. Not complying with the notice may result in a bank action against you that may end in the auction of the mortgaged property. On delaying the EMI payment, you may also experience a rise in the applicable interest rate as your CIBIL score may drop significantly.
Here Is What You Can Do
After missing an EMI payment, you should immediately inform your bank and explain the reason. You should try to repay the EMI without any further delay. If you have genuinely forgotten to repay the EMI, to avoid such instances in the future, you should take a step like getting your bank account linked for an auto debit for EMIs. If you have failed to make the payment due to a difficult financial situation like loss of job or income, you should quickly make a plan to tackle the situation financially. You may switch to your emergency fund, start looking for a new job, and, if required, liquidate some of your low-return investments to avoid further defaults.
To lower the impact, you may request the lender to increase the loan repayment tenure so that the EMI burden reduces, and you get some relief in an adverse financial situation. You may also request your bank to allow a moratorium of up to 6 months to avoid default while explaining the job loss situation or any other financial hardship you may be in. It can allow you some time to focus on finding ways. If the condition worsens, you may shift to a smaller home on rent while letting out your existing home. Differential rent can give you some financial support to repay the EMI loan without losing your home.
Adhil Shetty, CEO, Bankbazaar.com, says, “If you fail to pay your EMIs on time, it directly impacts your credit score. Banks can also charge penalties depending on the delay in paying back the EMI. The best thing to do in case you have missed the repayment deadline due to an oversight is to immediately pay the outstanding EMI. If you cannot manage repayments due to short-term financial emergencies, take it up with your lender and find a solution.”
Bring Your Loan Account Back on Track
It’s essential to cut down your non-essential expenses and focus on timely repaying the 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 might be difficult, but it is not the end of the road for you.
Planning your finances without getting puzzled due to a bad financial situation is advisable. A well-planned financial strategy will make things normal for you again.
