A home loan helps in financing your dream home quickly. As it includes a considerable amount and longer tenure, paying regular EMI becomes challenging sometimes. Everyone plans to repay the loan and makes a monthly budget accordingly, but anyone can miss the EMI due to unforeseen circumstances such as unemployment and a medical emergency. COVID-19 pandemic has negatively impacted over 75 lacs jobs and unemployment rate to a four-month high of eight percent in April 2021. In such a scenario, you will face the consequences in the upcoming months for late EMI payments depending on the current condition.
Whatever the issue is, you are bound to face the below-mentioned impacts:
- Impact on credit score
Generally, loan lending institutions report your loan repayment behavior to credit bureaus. Even if you miss a single EMI, it will also reflect your credit history and drop your cibil score. Dropping in cibil score can make you ineligible for future credit, and you will be considered a risky borrower by lenders.
Suppose you missed an EMI within ninety days of the previous EMI. In that case, you can recover it by taking corrective measures such as ensuring your ender that you will pay EMI at the next due date and late payment will not happen again.
- Penalties on late payment
Missing EMI means you have to pay late fees or penalties vary according to circumstances. Usually, the late fee on late payment is between 1% and 2% of the due loan EMI amount. In some cases, a payment penalty is also imposed on the borrower, but you have to pay penal interest on the overdue amount. This penalty is in addition to the late fees charged by the bank or any financial institution.
- No chance of transfer loan
Missing a home loan EMI will decrease the chances of transferring your loan amount to another lender offering a lower interest rate because you will be considered the high-risk borrower for the prospective lender. Most of the lenders may reject your application for the balance transfer at a lower rate of interest.
- Tag as non-performing assets(NPA)
The lender sends late payment reminders for the two missing EMI. Still, suppose you are not able to pay the loan after 90 days. In that case, your loan account tagged as a Non-Performing Asset (NPA) which means, you will be sent a legal notice asking you to repay the loan EMI as allowed by the legal framework of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002. And if you still don’t repay at this time, then the lender will notify you about the auctioning of your property to get the money from selling your property. Generally, the Auction date is set after one month from the date of notice given. So, the borrower can make arrangements for the EMI repayment amount.
Before taking a home loan, you must ensure that your finances are in line. Keep funds available for unexpected circumstances or any medical emergency that may occur in the future. Even if you face any financial issues during your loan tenure, it is good to inform your lenders. In most cases, it is observed that banks offer alternative solutions to bring your finances back on track. If you are under a financial burden, You can also increase your loan tenure. It helps in reducing your EMI stress. You will always have an option of prepayment throughout the loan tenure. Thus, use the home loan balance transfer option to save overall interest or reduce your financial stress.