Missed Your EMI? Here is What You Need To Do Next.
Defaulting your home loan EMI payment can be a distressing experience and often out of your hands. Here are some things you could do if you have defaulted on your home loan EMI payment to minimize the damage and prevent missed payments in the future.
Types of Defaults on EMI Payments
If you default on your home loan EMI payment, your action is slotted into one of two bands, based on the severity. Let’s take a look.
1. Minor Defaults:
Since banks do not want to sour relationships with customers over one or two missed EMI payments, they slot customers who have made their previous payment within the last 3 months (90 days) into the ‘minor defaults’ category. This is a minor default if you made your EMI payment in January but missed February.
2. Major Defaults:
As you would have come to assume by now, the ‘major default’ badge is given to those customers who have missed payments for the last three months or more. For instance, if your last EMI payment was three, four or more months before the month in question, this is a minor default.
The Consequences
The consequences could vary based on your relationship with the bank. They might settle for a lesser punishment if you have a good home loan track record and have missed only one or two payments. However, if the bank views you as a liability, the consequences for defaulting on your home loan EMI could be more severe.
1. Negative Effect on your Credit Score
Defaulting on your home loan or home loan EMI payment can negatively impact your credit score (CIBIL score), as your credibility towards loan repayment reduces. Using a home loan EMI calculator to plan your home loan EMI payments is best.
2. Fines and Penalties.
Banks will want to disincentivize borrowers from repaying their loans, resulting in penalties you might have to pay if you miss your home loan EMI payment. Generally, this penalty is about 1-2% of the EMI, though it can accrue quickly if you miss multiple payments.
3. Recovery and Legal action.
Often considered a last resort, a lender might have to take legal action or send a recovery agent to retrieve the funds you owe, which can be a highly stressful experience.
Here’s what to do next
If you miss your home loan EMI payment, you will likely face the consequences. However, you can take action to ensure you do not default again, thus minimizing the penalties and negative impact on your credit score. Here are some things you can do.
1. Reduce your EMI payments
If you cannot meet your home loan EMI payments, revisit the home loan eligibility calculator. Your bank requests that the EMI be reduced by extending the loan tenure or converting the loan into a secured loan by putting up collateral.
2. Part Payments
If you have surplus resources, you could make part payments towards your home loan and pay off a bigger percentage to have more leeway.
3. EMI-Free Periods
If you find yourself in the worst-case scenario where your income has been affected for an extended period, then you could also request your bank for an EMI-free period. Often granted by banks to customers with temporary unemployment, this allows EMI payments to be paused (usually for 3-6 months) to provide relief.
Conclusion
Applying for a home loan can be tricky, as you have to account for your income in the future as well. If you are looking for a home loan, you can browse the various options on the Piramal Finance website, follow this simple sign-up process, and get loans up to 5 crores, with flexible repayment options.