Missed an EMI Payment? Here’s What You Need to Know

Life isn’t always predictable – a lot of things don’t always go as planned. Missing a personal loan EMI can be one of the things that crop up unexpectedly – and it can happen to anyone. Whether it is due to lack of funds, a missed reminder, or other events that warranted your complete attention, what matters is how soon you act and what you do next after defaulting on your personal loan. This guide delves into what happens when you miss an EMI and the options you have at your disposal to manage the impact.

What should I do if I missed my EMI payment by one day?
 

If you’ve missed your EMI payment by just one day, don’t panic but act quickly. The first step is to make the overdue payment immediately through your bank’s net banking portal, mobile app, or payment link shared by the lender. This ensures the delay does not extend further and cause additional interest charges.

Next, check if any late payment fee or penalty has been applied. You can find this information in your loan agreement or by logging into your loan account on the lender’s website/app. You may also receive SMS or email alerts specifying the overdue amount and applicable charges.

It’s equally important to inform your lender promptly. Contact their customer care team or raise a service request through the app or website explaining the delay, especially if it was due to a technical or banking issue. This proactive communication can sometimes help waive off minor penalties and prevent a negative impact on your credit score.

To avoid the hassle of missed EMIs, consider setting up auto-debit instructions or payment reminders to always be up to date with your financial obligations.

Many banks, including IDFC FIRST Bank, now offer real-time payment alerts, reminders via app or sms, and auto-debit options. Using these features can drastically reduce the chance of missing your EMI due date.

What happens if EMI is not paid on time?

Missing an EMI payment can have different consequences depending on how long the delay lasts. A minor delay, such as missing the due date by a few days, is often manageable. In such cases, the EMI bounce may trigger a late payment fee and penal interest, and you’ll likely receive reminders via SMS, email, or a call from the lender. Most lenders offer a short grace period, usually from 3 to 5 days, during which you can make the payment without severe repercussions.

However, if the delay turns into a prolonged default, such as missing EMIs for 90 days or more, the impact is much more serious. After this period, the loan is usually classified as a Non-Performing Asset (NPA), and you may be marked as a loan defaulter. This significantly affects your credit score, limits your future loan eligibility, and may even invite legal recovery action from the lender.

To avoid these outcomes, it’s wise to calculate your EMI in advance using a personal loan EMI calculator, ensure sufficient balance on due dates, and maintain clear communication with your bank in case of any financial difficulty.

What is the impact of a personal loan EMI default?

Defaulting on your personal loan EMI can trigger a series of financial setbacks, both immediate and long term. Here’s how it can impact your financial profile:

Immediate consequences

1. Late payment charges: If the payment fails because you had insufficient funds in your bank account, you will incur a penalty from both the lender and your bank. Lenders may charge a late fee of 1% to 2% of the overdue EMI amount.
   
   
2. Credit score damage: Missing an EMI reflects poorly on your credit behaviour. Banks report such defaults to credit bureaus like TransUnion(CIBIL), which can lead to a significant drop in your credit score. A lower score can restrict your access to future credit cards, home loans, or any form of unsecured lending.
   
   
3. Interest costs: You will continue to accrue interest on your outstanding loan amount, resulting in higher interest outflow.
   
   
4. Collection calls and legal action: Prolonged defaults may trigger frequent collection calls, visits, or even legal action. Recovery proceedings can cause significant stress and financial strain.

Impact of extended delay (90 days or more)

1. Higher interest rates in future: Once you’re marked as a defaulter, lenders view you as a high-risk borrower. This means you may only qualify for loans at a higher personal loan interest rate or less favourable terms in the future, even if your financial situation improves.
   
   
2. Loan restructuring or settlement: If you're consistently unable to repay, the bank might offer a loan restructuring plan. This could include extending the loan tenure or reducing the EMI temporarily. Alternatively, a loan settlement might be offered, where you repay a portion of the outstanding dues. However, settlements are reported to credit bureaus and can hurt your creditworthiness.
   
   
3. Difficulty in getting new loans: Most importantly, once you've defaulted, securing new credit becomes difficult. Even if approved, you may face strict scrutiny and conditions, such as the need for guarantors or collateral.
   
   
4. Legal action: The lender may also initiate legal action on you to recover their outstanding dues. This can be a stressful, costly, and time-consuming process.

What do to if you cannot manage your loan payment?

If you ever find yourself in a tight spot due to missed payments, here are a few things you must do:

• It’s never too late to ask for help: If you have not paid your EMI, get in touch with your bank and speak to your personal loan officer. Explain your situation. If it’s a genuine issue, such as a medical emergency in your family, your bank may offer to defer you payment and allow you to pay your due in the following month. However, you must assure to pay both the months’ EMI on time. The bank may charge a small late payment fee.
  
  
• Request for an extension: If you don’t think you can pay your EMI in the coming few months due to a long-term issue, such as if you’ve had a pay-cut or if you have lost a job, it is still advisable to connect with the executives at the bank and find out a permanent solution for this. You may request to restructure your plan.
  
  
• Check for a loan against investment/insurance: The next best thing to do is to take a loan against your personal assets, such as gold, fixed deposit or personal insurance. A secured loan borrowed against collateral has a lower rate of interest, so you can pay that later. The money you receive now can help you clear your EMI for more expensive loans.
  
  
• Ask for settlement: If none of the above-mentioned options work, talk to your bank about settling the loan. This will mean that you will agree to repay a part of the loan and the bank considers it as a settled loan. While the rest of the options do not hinder your credit score, this one does. A loan that is ‘settled’ reflects negatively on your credit history than a loan that is fully repaid.
• Consider a balance transfer: If your EMI burden feels heavy, you may transfer your personal loan to another bank offering a lower interest rate. This reduces your monthly outgo and helps you stay on track.

Need help with your EMI? Contact IDFC FIRST Bank today

Defaulting on EMIs can result in unpleasant consequences. With FIRSTmoney, IDFC FIRST Bank’s smart instant loan, you get the benefit of a customised, flexible repayment plan ranging from 9 to 60 months that is aligned with your financial situation. Plus, you won’t have to pay any foreclosure charges if you pay your loan early. Take control of your finances and experience borrowing that is tailored to your needs. Get in touch with a bank representative today.