Life is long journey and there can be a need of funds at any point of time. Funds can be generated through various ways. Borrowing a loan from a Bank/ NBFC is safest among all. Buying a house or mortgaging an asset for the arrangement of funds for any reason. To spend for the fulfilment of the desires need help in the form of funds. This funding can be arranged in the form of loan. Thought of loan comes with the next thought of EMI’s. It can be any type of loan whether secured or unsecured, loan comes with a responsibility of paying monthly instalments. But what if one is unable to pay the EMI’s on time?
It is not only important to pay the EMI but also to pay on time is very important. Following are the consequences the borrower has to face before he misses his EMI.
Toll on CIBIL Score
- A negative remark from the credit score rating agency is not a positive sign.
- Missing EMI weighs very high on the credit score
- To what extent Credit score is affected depends on Repayment track record of the borrower
- Score gets hurt with every missed instalment
- Missed payment in the Credit report could lead to disapproval in the future perspective lender’s mind. It means that this will affect in getting another loan in future.
- You get a tag of risky borrower
- Anyone cannot lend money to a person who defaults in his payments. And for the lender you are not just anyone but the customer.
Banks/ NBFC will continuously follow up on EMI delays. At times, external means such as recovery agents are hired to recover the payments. Such situations can be embarrassing and should be avoided.
Penalty for late payments
- Lender’s generally charge a percentage of the due amount as a penalty for the delay or missed payments if it remain unpaid after 30 days of the due date.
- If you have no choice but to delay or miss, it is advised to pay it as soon as possible. Late payment charges are still bearable instead of bearing a penalty on missed payments.
Cheque / ECS/NACH Bounce Charges
Lenders have the facility to get the payments on time through ECS or National Automated Clearing House (NACH). Due to insufficient funds ECS/NACH bounce charges are charged and NACH provides an extra facility by submitting the available amount in favour of EMI from the borrower’s account.
Apart from the above charges there might be few other miscellaneous charges that can increase the amount. In case of regular defaults Banks/ NBFC reserve the right to increase the interest rate. Since an agreement is signed between the lender and the borrower, borrower is not left with much to say about it. In such case, the situation of the debt is completely different.
Time heals but it takes time to recover
- A missed payment can lower the credit score for few years. But it will be repaired with time.
- Satisfaction of paying off a huge responsibility is a great relief. After borrowing a loan we should always look forward to closing it.
Before applying for a new loan, do not count your other financial commitments like monthly expenses, existing loan EMI’s, money for emergencies etc. A job loss or illness might have prevented you to repay the loan. But there are ways to tackle the situation. Try negotiating that ideally benefits both you and the lender. A borrower might ask the Bank/ NBFC to restructure the repayment to reduce the EMI by extending the loan tenure. After all you owe the Bank’s/ NBFC’s money, so instead of hiding or running from the situation, put it forward to the Bank/ NBFC. Borrower can also try on cutting other expenses for few months and concentrate on clearing the loan.
To possess the borrower’s property is the last priority of the lender. Though banks have the right to repossess the collateral in case of the default by the borrower. Banks/ NBFC’s are more interested to recover the money instead of starting legal proceedings against the borrower. The entire process is lengthy and time consuming and need to be followed by the bank to recover by way of possessing the property.
It’s best to plan the finances well in advance with some foresight. A financially healthy life keeps us motivated.