Fri. May 20th, 2022
home loan

Purchasing your first home puts you in a financial bind and uses up all of your money. You also strive to get the largest feasible house loan so that you may buy the greatest property possible with the money you have. Home loans are long-term obligations that need EMI payments for at least 15-20 years. Your financial responsibilities alter considerably throughout these years, and you may find yourself unable to make your house loan EMI payments. Although most lenders would be flexible if they have a notice of a single default in advance, multiple failures can have far-reaching consequences. If you miss an EMI, you might have to pay the default amount in addition to the next month’s EMI the following month. If you miss one or two EMI payments due to unforeseen circumstances, it’s not a significant issue. However, If you have a strong payment history and legitimate reasons, the lender may allow you a grace period. The default, on the other hand, will lower your credit score. In this case, the bank will give a quick warning. If you don’t pay your EMI for three months in a row, it will be considered a red flag. The bank will identify you as defaulters, and you will receive a notification. 

Consequences of Repayment Default

The following are the consequences of defaulting on a home loan in India: 

A late fee has been imposed. 

In the event of a default on a home loan, you will have to pay late fees, fines, and, in certain cases, punitive interest. The punitive interest is usually 1-2 percent of the EMI. As a result, you might have to pay punitive interest on the whole amount owing for the time of default, depending on the circumstances. This is in addition to any late fees levied by the lender.

The Collateral is in your possession. 

After three consecutive EMI defaults, banks and financial institutions frequently consider a loan default to be a Non-Performing Asset (NPA). As a result, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) of 2002, they began the process of collecting debts. You will have 60 days to clear your debts after obtaining a legal notice. Under the SARFAESI Act, banks have the power to take your collateral if you don’t pay your obligations within 60 days. Your collateral will not release without a court order under the SARFAESI Act.

The Collateral Auction 

The bank will give you another notice with the value of the collateral. Whether it’s a property or jewellery, and the date of the auction if the dues aren’t clear after 60 days. If the collateral is a life insurance policy, the funds will return to the lender before the policy’s transfer to the insurer.

The Effect on Your CIBIL Score 

Even skipping a single EMI payment can affect your CIBIL score since it will appear on your credit report. A single loan default can reduce your credit score by 50 to 70 points. Moreover, if  your CIBIL score falls you can use measures on how to increase CIBIL score to boost it up once again. This has an influence on both your CIBIL score and your creditworthiness for future borrowing plans. You’re considered a high-risk borrower by banks, which lowers your chances of securing a loan. Even if you are authorised for a loan, there are severe terms and conditions that must be followed.

You might ask your lender for a reduced EMI and more efficient financing to prevent defaulting on your house loan. If you have a gap in your funds, you can approach the lender and ask for an EMI-free time. Banks may issue you a three- to six-month EMI payment waiver. If you have lost your employment or temporarily halted your company activities. On the other hand, the lender has the option of charging interest on the outstanding loan amount at a later date. Another alternative is to make partial payments to lessen the EMI load. This may be accomplished with the assistance of a house loan overdraft. When you have extra income and an active house loan. You can make a partial payment to your overdraft account may relieve your financial burden. 

By Muhammad Hammad

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