Choosing a home loan to fund your dream home is a popular choice in India, given the flexibility of long tenures and tax benefits. However, life can sometimes throw financial challenges your way, making it tough to meet those EMI payments. Let's explore the consequences of missing your home loan EMIs and what to do in such situations.
It is important to understand the potential repercussions and possible courses of action if such a scenario should ever arise.
Missing an EMI payment could incur late fees, penalties, and penal interest, typically ranging from 1% to 2% of the overdue amount. These additional costs tend to significantly increase your total interest payout, making your future EMIs more expensive and challenging.
Impact on Credit Score
Each missed EMI payment dents your CIBIL score by 50 to 70 points. For example, if you had a score of 750 and missed two EMIs, your score could drop to 610 to 650. This hampers your credibility as a borrower and makes it harder to secure loans in future by potentially increasing interest rates.
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When overdue payments aren't settled within the grace period, your lender may categorise your loan as a Non-Performing Asset (NPA). This grants them the legal right to auction your property or collateral to recover their dues, as per the SARFAESI Act of 2002.
Seizure of Property
After receiving a legal notice, you usually get two months to pay your missed EMIs. Failing to do so leads to an auction notice containing your property's estimated value. Continued defaulting prompts the lender to initiate the auction process. This can take about six months, giving you ample time to negotiate for a suitable loan settlement.
Impact on Co-signer
Defaulting on your loan not only affects your reputation but also that of your co-signer. As they are involved in the process, it could damage their credit score and financial standing.
If your dues are within the 90-day grace period, follow these steps to get your EMI payments back on track –
Contact Your Lender: As soon as you realize that you cannot make an upcoming EMI payment, get in touch with your lender and be honest about your financial situation.
Create a Budget: After discussing your repayment issue, make a budget based on your net income and essential expenses. Identify areas to cut down on for meeting your EMI obligations.
Reduce Expenses: Review your monthly cash flow to determine which expenses can be reduced or temporarily put on hold until your finances stabilise.
Use an EMI Calculator: Assess your financial situation and create a plan for getting your EMIs back on track. Understand your pending dues accurately with a home loan EMI calculator on Bajaj Markets. Simply enter the loan amount, interest rate, and tenure, into the calculator and get your approximate monthly EMI payment.
Quick Link: Calculate your Home Loan EMI
If you have crossed the 90-day grace period and are still unable to repay loan instalments, consider your next course of action from the following options –
Request a Grace Period: If you have genuine reasons for non-payment, discuss your financial situation with the lender and request a grace period.
Home Loan Restructuring: Consider restructuring your loan, where lenders can reduce your EMI or extend the loan tenure. Try to negotiate for lower interest rates on the outstanding amount.
Liquidate Investments: Evaluate which of your financial assets you can liquidate to pay the dues, such as mutual funds, shares, bonds, fixed deposits, provident funds, etc.
Debt Consolidation: You can choose a Home Loan Balance Transfer to consolidate your dues. With a good credit score, you can secure lower interest rates as well as a higher loan amount.
Property Sale: Selling your property should be a last resort. Seek the lender's permission to sell your property independently, as you could get a better price than an auction sale.
In India, the legal rights of loan defaulters are protected by legislation and regulatory frameworks. Here are their rights –
Right to Receive a Notice: Before any debt recovery action, the defaulter must receive a formal notice detailing the debt, amount owed, and a reasonable response period.
Right to Be Heard: Defaulters have the right to present their side and negotiate with the lender or via legal channels in disputed matters.
Right to Fair Debt Collection Practices: Debt collectors must adhere to ethical standards, avoiding abuse, harassment, or disclosing the debt to third parties.
Right to Grievance Redressal: Borrowers can file complaints against unfair treatment and seek resolution through legal channels.
Right to Fair Value: In case of collateral sale, defaulters have the right to a transparent, fair market value sale to settle the debt.
Right to Claim the Balance: After collateral sale and debt settlement, any surplus funds must be returned to the defaulter.
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It's crucial to have a solid grasp of your financial situation and create a plan for managing EMI payments before committing to a home loan. Skipping multiple EMI instalment can result in serious financial troubles in the long run. Hence, you should calculate your home loan EMI before even applying. Fulfil your realty goals and stay ahead of your dues with easy repayment options and moderate interest rates. Choose a Home Loan from Bajaj Markets! Explore loan terms from various top lenders and choose the one best suited to your financial situation and aspirations.