Home loans are long-term financial commitments, and paying your EMIs (Equated Monthly Installments) regularly and on time is crucial. Staying financially sound is essential to protect your home.
However, borrowers can face numerous issues if they miss or are late in making EMI payments. Let’s explore the consequences:
Late Payment Penalties: Lenders typically impose a penalty fee if you pay your home loan EMI late or after the due date. This penalty may consist of a flat fee or a percentage of the overdue amount.
For instance, a penalty of 2% to 3% per month may be charged on the outstanding EMI, which increases the principal amount you owe.
Impact on Credit Score: Delaying EMI payments can negatively affect your credit score. Missing EMIs can lower your score, making securing future loans, credit cards, or favorable interest rates more difficult. Most banks report missed EMIs to credit bureaus like CIBIL, which can damage your credit history.
Increased Interest: When you miss an EMI payment, the outstanding amount is added to your principal balance, increasing the interest charged.
The longer you delay paying the EMI, the higher your total loan balance. If your financial condition worsens, you may need a more extended repayment period.
Notices from the Lender: If you miss or fail to pay more than one EMI, your lender will issue default notices to remind you of your payments.
These notices will detail the dues and the consequences of continued delay. Ignoring these notices can lead to more severe actions from the lender.
Legal Actions: Lenders may classify your loan as non-performing if you fail to pay your EMIs for 3 to 6 months. If your loan is secured against your property, the lender has the right to seize your property as outlined in the SARFAESI Act.
Note: SARFAESI Act, 2002- Securitization and Reconstruction of Financial Assets and Enforcement of Interest Act, 2002.
EMI Burden Due to Increased Loan Term: Sometimes, lenders may restructure the loan to alleviate the EMI burden. While this may offer temporary relief, it usually increases interest payments over the loan’s entire tenure.
Difficulties in Loan Restructuring and Refinancing: Missing EMIs can lower your credit score, complicating your ability to restructure or refinance your home loan later.
Lenders may impose higher interest rates or reject your application altogether if they view you as a risky borrower.
Psychological and Financial Stress: Late or missed EMI payments can lead to significant financial stress, creating anxiety for borrowers.
The risk of losing property or facing legal action can also impact mental health and strain relationships with lenders.
What to Do If You Miss an EMI
- Contact Your Lender Immediately: If you are experiencing genuine financial difficulties, most lenders are willing to offer grace periods or temporary relief. It’s crucial to explain your situation clearly to your lender.
- Request Loan Restructuring: If you are struggling to make your EMI payments, consider asking for an extension of the loan tenure or a temporary reduction in the EMI amount.
- Apply for a Loan Moratorium: If you face a temporary financial setback (such as job loss or a medical emergency), you may be eligible for a loan moratorium to defer EMI payments without penalties.
You can navigate financial challenges more smoothly by taking prompt action and communicating effectively with your lender.