Everything you must know if you missed your EMI payment

Life throws all kinds of curveballs at us. Unfortunately, we aren’t all professional batsman to score a hit every time, correct? One such curveball can be defaulting on your personal loan. Now, this can happen for any given reason, ranging from lack of funds to simply forgetting to pay on time, but the solution is to always take action sooner than later.

If you are someone who has missed an EMI payment recently or are struggling to pay your loan, it’s important to know the steps you should take in order to prevent your debts from spiraling out of control. However, before doing that let’s learn about what happens if you miss an EMI. 

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What happens if I miss an EMI payment on my personal loan?

EMI or Equated Monthly Installments are one of the most popular and ideal payment methods to clear off an outstanding loan within a stipulated time-frame. However, such loans come at relatively higher interest rates. Therefore, it’s advisable to always calculate the EMI amount on a personal loan EMI calculator. This will help you understand the amount you will have to pay each month against the principal for specified loan tenure.

Now, if for some reason, the funds in your account are insufficient, then your EMI will not be debited successfully on the due date. This is when you will receive a reminder in the form of a notification on your email or a call from the bank informing you to clear your dues. In many cases, the bank offers a grace period during which you can clear your EMI. Following your grace period, the bank will begin charging you for late payment. You will only be added to the defaulter’s list if you miss paying your EMI for three months or 90 days. 

What are the impacts of an EMI default?

Credit score: Any instance of missing out on EMI payments will lend a bad impression on your repayment history. The bank will report a default to the credit bureaus and this will reflect negatively on your credit score too.

Higher interest rates: Once you become a defaulter, the chances are that the bank may start charging a higher interest rate on your personal loan, as you will be considered a risky borrower.

So, if you ever find yourself in a tight spot like this, 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. This will give you some relief and you can get back on track form the next month on.
  
  
• 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: Now, 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.

While you do have these options at your disposal, the best thing to do is to build an emergency fund. So when you see a curveball coming at you, you know exactly how to spin your bat. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.