Home loan interest rates have gone up considerably over the past few years forcing many borrowers to either opt for higher equated monthly installments (EMIs) or a longer investment tenure. The increased burden of EMIs has caused some of them to miss out on their loan EMIs. Failing to pay an EMI for a loan, whether it's for a home, car, or personal expenses, can lead to various potential outcomes. These consequences depend on the bank's regulations, the loan type, and the precise terms outlined in your loan agreement.
This is the typical course of events when you fail to make the EMI payment for a loan:
Late payment charges: The overdue payment charge stands as a fine imposed by the lender when an EMI payment is not rendered punctually. The specific sum of this fee hinges on the lender's policies and the provisions outlined in the loan agreement. Generally, it falls within the range of one per cent to two per cent of the EMI value. For instance, if your EMI amounts to ₹10,000, and you fail to make a payment, you could face a late payment fee spanning from ₹100 to ₹200.
Penal interest: Penal interest refers to a form of interest imposed by a lender in cases where a borrower fails to make a timely EMI payment. This type of interest is typically set at a higher rate compared to the standard interest, and its inclusion can notably escalate the overall interest expense incurred on the loan.
The precise quantum of penal interest is subject to the lender's guidelines and the stipulations laid out in the loan agreement. Generally, it ranges from two to four per cent per month. For instance, if your EMI amounts to Rs. 10,000, and a payment is missed, you might face penal interest ranging from ₹200 to ₹400 each month.
Penal interest can exert a substantial influence on the cumulative interest sum for the loan. To illustrate, if one EMI is skipped and penal interest is imposed for 12 months, you could find yourself paying an additional ₹2,400 to ₹4,800 in interest.
Damaged credit score: Your credit score serves as a numerical representation used by lenders to evaluate your creditworthiness. Its computation takes into account various factors, encompassing your payment track record, the extent of your debt, and the duration of your credit history.
When an EMI payment is skipped, it registers as an adverse notation on your credit report. This can lead to a reduction in your credit score, ranging from 50 to 100 points, contingent upon the seriousness of the default and your overall credit history.
A diminished credit score can heighten the challenges of securing approval for forthcoming loans or credit card applications. Furthermore, it might result in elevated interest rates and charges on the loans you do manage to secure.
In the event of an EMI payment lapse, it's crucial to promptly take measures to mend your credit score. This can be achieved by consistently making all forthcoming payments punctually, decreasing your debt load, and extending the duration of your credit history.
Collateral repossession: Obtaining a collateralized loan involves using an asset as security to ensure the repayment of the loan. In the event of a loan default, the lender has the authority to seize the collateral and sell it to recover the incurred losses.
Legal action: Persistent non-payment of EMI installments may prompt the lender to initiate legal measures against you. This could involve initiating a lawsuit or implementing wage garnishment. Legal recourse is a significant step that should be evaded whenever feasible. If you find it challenging to meet your EMI obligations, it's crucial to promptly get in touch with your lender. They might be able to collaborate with you in devising a feasible payment arrangement.
The repercussions of failing to meet a loan EMI are significant, underscoring the importance of adhering to timely payments. If you find yourself facing difficulties in meeting your obligations, it's crucial to promptly reach out to your lender to explore potential solutions.