What Happens When You Don’t Pay Your Home Loan EMI On Time ?
Missed Home Loan EMI? Penalties, Impact & How to Avoid It
A home loan helps you buy your dream house. Since houses are expensive, these loans usually have a high value and a long repayment period. Lenders provide only 75% to 90% of the property's cost, so you must pay the remaining amount as a down payment. You repay the borrowed money in fixed monthly payments called EMIs (Equated Monthly Installments).
For many people, taking a home loan is the only way to afford a house. These loans also come with tax benefits. However, if you lose your job or face financial problems, you may struggle to pay your EMI. Missing payments can have serious consequences, but there are ways to handle the situation.
What Happens if You Miss a Home Loan EMI?
If you miss an EMI payment, there are two main consequences:
• Your CIBIL score will drop – This score is crucial for getting future loans.
• Your next EMI will become more expensive – You will have to pay late fees, penalties, and additional interest.
Monetary Consequences of Missing an EMI
• You will have to pay late fees and penalties (usually 1% to 2% of the overdue amount).
• Penal interest will be added to your loan, increasing your total interest cost.
• Your next EMI will include the missed amount, making it more difficult to manage.
• If you fail to pay for 90 days, your loan is classified as a Non-Performing Asset (NPA).
• Once the loan is marked as an NPA, the lender can legally auction your property under the SARFAESI Act of 2002 to recover their money.
Impact on Your CIBIL Score
• Your CIBIL score drops by 50 to 70 points for each missed EMI.
• If your score was 750 and you missed two EMIs, it could drop to 610-650.
• A lower CIBIL score makes it harder to get loans in the future and may increase the interest rates on future borrowings.
• A very low score may make you ineligible for any credit or loans.
How to Get Back on Track After Missing an EMI?
If you have not crossed the grace period (usually a few days after the due date), you can fix the issue easily. Follow these steps:
Step 1: Contact Your Lender
• Inform your bank or lender immediately if you realize you will miss a payment.
• Some lenders offer temporary relief, like restructuring your EMI plan.
Step 2: Make a Budget and Stick to It
• Calculate your monthly income and expenses.
• Find areas where you can cut unnecessary spending.
• Adjust your budget to ensure you can pay future EMIs on time.
Step 3: Reduce Unnecessary Expenses
• Avoid luxury purchases and extra spending until your finances are stable.
• Use any savings or extra income to pay off your EMI.
Additional Points to Consider
1. Loan Insurance: Some lenders offer insurance that covers your EMI for up to three months if you lose your job (but not if you are fired for poor performance).
2. Lender Notices: If you miss several payments, lenders will send notices before classifying your loan as an NPA.
3. Last Chance to Save Your Property: If your home is about to be auctioned, you can still save it by clearing your dues before the auction process begins. However, you may also have to pay the recovery costs incurred by the lender.
4. Lenders Prefer to Help: Banks usually prefer to help you repay rather than auction your house. They may offer support options to help clear dues.
Conclusion
Before taking a home loan, analyze your finances carefully and plan how you will manage your EMIs. Missing an EMI can cause financial trouble, so it is better to calculate your EMI before applying for a loan. Online EMI calculator can help you plan your repayment strategy.
If you face an unexpected financial crisis, such as losing your job, contact your lender immediately and discuss possible solutions. Lenders often provide options to help you get back on track without losing your property. Being proactive and financially disciplined will ensure you manage your home loan without stress.
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