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What Happens When You are Unable to Pay Your Home Loan

By Suprita Biswas - Dec 8,2021
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Home Loan

If there is one thing that the ongoing pandemic has taught us, it is the need to feel secure. And a lot of us are fulfilling this need for security by purchasing homes. It goes without saying that the amount required to buy a house is substantial, and the best way to fulfill this requirement is to borrow from a bank or a financial institution. 

Nowadays, the process of securing a loan is quick and easy, but what happens if the borrower is unable to repay this loan on time? It is important to understand the repercussions before making an uninformed decision. So, without further ado, let’s find out what to expect if you end up missing your loan EMI payment.

What happens when you falter?

Drop in Credit Score

A single missed payment on your loan can affect your CIBIL score negatively and decrease your credit worthiness. If this wasn’t enough, you also end up paying more as late fees for delayed payment. A lower credit score will not only destroy your reputation and make it difficult to regain from it, but also make it challenging to apply for a new loan. Even if you end up paying your EMI on time, it will still take a long time to completely recover from this fall.

Legal Implications

Missing one EMI may not make you a loan defaulter, but consecutively missing payments for three months may provoke the lending organization to declare your loan as an NPA, or a Non-Performing Asset. This means that the lender is unable to generate any income from the loan and can take subsequent steps to recover the money. They can take over your property and can auction it, liquidate the assets promised as collateral, or take other necessary legal actions. 

Negative Impact on Co-signer

In case you have been declared a defaulter, your co-signer will be approached by the lending institution as part of the recovery process. This will not only ruin your reputation but will also cause distress for the person who has agreed to co-sign for your loan. Your loan default will affect their credit score and their position negatively as well.

What can you do to save face?

Restructure Your Loan

The first and the foremost thing to do if you fail to pay your EMI is to have a discussion with your lender about restructuring your loan. There can be several options to ease the situation out. By presenting relevant documents and convincing the lender of your willingness and ability to pay future instalments, you can get your plan restructured.

Refinance Your Loan

You can also opt to refinance into a long-term plan that will lower your monthly instalments. This will ease out the monthly burden by increasing the overall tenor of the loan. However, keep in mind that you will end up paying more in terms of interest due to the increased duration. 

Liquidate Other Assets

In case you have other assets or investments, you could liquidate those and pay off your EMI. You could also use that money to do a part-payment, which can reduce the borrowed amount substantially.

Dispose the Property

As a last resort, you could approach your lender with the option of disposing of the disputed property itself. Since you have defaulted on your loan, the lender’s permission is mandatory for any such transaction. The benefit of doing this yourself instead of letting the bank auction your property is that in case you recover more than the pending amount, you could use the extra money to buy another property or invest the amount as you please.

The dream of owning a home comes with its commitments. Since it is a huge financial decision, you are required to measure all options before taking the plunge. Plan your finances well, and you will never have to face the music.

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522