EMI on Loan: Digital banking has made borrowing so much easier. While it is easy to get funding, repaying it should be your priority. Delays in repaying EMIs can severely affect your financial health. Here we have explained in detail what happens if EMIs are delayed like that.
Penalty: Delay in EMI for more than one month will result in a penalty of one percent to 2 percent of the minimum or maximum penalty as prescribed by the banks. Banks may charge a higher penalty than normal interest when the EMI is delayed.
Classifying the Account as Inactive Assets: Banks classify EMI defaults into two types: small default and large default. EMI delay of up to 90 days falls under the minor default category, whereas missed three consecutive EMI payments are classified as a large default.
If the principal or interest is not paid within 90 days, the bank may consider your loan as a non-performing asset (NPA) and initiate recovery proceedings against you. Before your loan is marked as NPA, the bank sends you a notice. If you deposit the required amount within the period specified in the notice, you can avoid turning your loan into an NPA.
Credit score vulnerability: If you miss an EMI, your credit score may drop by about 50 points depending on the type of credit and other factors. Recovering the EMI and taking the right steps can gradually improve your credit score, but your credit score statement may still reflect delays in payment. If your loan is classified as NPA, it could severely affect your credit score.
Solution for outstanding loans: Once your loan is declared a non-performing asset, the bank may offer you the option of repaying the entire outstanding amount, including interest and penalties, or you may be forced to repay the loan by waiving interest and penalties. This may seem like a financial comfort to you. But do not forget that they can become a huge black spot in your creditworthiness. Lending banks may not want to give you new loans if your credit report contains details about the settlement.
How do avoid delays in EMI payments?
It is always a good idea to plan ahead to repay your loan to avoid future debt repayments. Instead of allowing your debt to become an NPA, explore options such as eliminating some of your low-income investments. Having a strong emergency fund can be helpful in overcoming such financial problems.
Sometimes the lender may allow some relaxation, such as extending the repayment period and restructuring the loan. Avoid taking on too much debt at once.
Avoid borrowing to repay another loan as it can create huge debt problems. And it can be hard to recover from that. If you have difficulty repaying the EMI, you can try to pay the minimum interest to avoid your loan being classified as an NPA.
What happens if the loan is not repaid,
- If the EMI has delayed for more than a month, the bank may impose a penalty of 1-2% for the late installment
- If you miss an EMI, your credit score may be reduced by about 50 points depending on the type of loan and other factors
- If you are unable to repay the EMI, the loan NPA Pays interest to prevent becoming
- Try to remove some of your investments to repay the outstanding loan