Missed Your Last Few EMI’s ? Here Is What to Do Next

Introduction

There comes a phase in life when we need monetary help to fulfil our short-term or long-term goals. With the proliferation of financial institutions, getting a loan has gotten much easier. In order to develop a long-lasting relationship with the customer, lenders provide loans at favourable terms and conditions. However, despite lenders strictly checking eligibility criteria and borrowers getting good terms like low EMIs and long repayment tenures, sometimes the latter fails to repay the loan. In such cases, the lender reserves the right to recover the capital lent. However, this does not mean a bulky recovery agent will start banging your door immediately. There are pre-defined procedures that lenders must follow if the borrower fails to repay the loan. But there are some ways which can help you in situations where your missed your EMI .Let us have a look at few of them :

What to Do When Have Missed Your Last Few EMI?

• Have a Discussion with your Lender:

If there is a valid reason for non-repayment of EMIs and you have communicated it to the lender, you may be given an EMI holiday for a couple of months. While you get a temporary respite, you will be charged a fine for the former EMI defaults.

• Renegotiate Your Loan Terms:

If you are in a position to pay a smaller EMI, then clearly state it to the lender and request to increase the tenure period and lower the EMI. Clear-cut communication can save the day and believe us; dealing with the lending institution is much easier than dealing with their debt recovery agents.  

• Debt Consolidation:

If your present lender is not ready to renegotiate terms, you can always approach another lender asking for a fresh loan to repay the previous one (called refinance start over completely and this time with no intention of defaulting. Sometimes, you miss the EMIs because you have 3-4 different loans on you. In this case, Debt Consolidation helps - i.e. bringing different smaller loans in one bigger loan so that you never miss your deadline.

What Happens When You Fail to Repay Your Loan?

Though the defaults on secured loans (that include an asset as collateral) and unsecured loans are dealt differently, the umbrella framework of the recovery process and the impact of the default on the borrower’s finances are more or less the same irrespective of the type of loan. Following is the gist of repercussions in case of a loan default:  

1. Legal Process Starts

• Reminders:

Most financial institutions consider default on one or two payments as late payments if the borrower starts paying the EMIs again. But, if the number crosses three defaults, the lender starts sending notices to the borrower under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, asking the borrower to make payments soon. Here the borrower also stands the risk of being marked as a Non-Performing Asset (NPA), which in turn can shut his/her options of borrowing in the near future. If the borrower still does not pay heed to the lender’s notices and reminders, then the lender can take the legal course and file a lawsuit.  

• Fine Imposition:

When you default, you can be charged with a huge fine to bring you back to the status quo. This is more common in cases of unsecured loans as the lender cannot sell the collateral to recover the money. Initially, the borrower enjoys the benefit of doubt but if the lender suspects a foul play, stricter actions are expected.    

• Loss of Collateral:

In cases where an asset has been put on stake as collateral, the lender in case of a default will sell it to recover the money. Secured loans are called so because they secure the lender from defaults by giving them the authority to recover the money. If the borrower does not answer the reminders and legal notices sent by the financial institutions, then the borrower may lose his asset like home, car, jewellery, etc., which is usually costlier than the borrowed loan amount.    

2. Credit Score Dips

When there is a loan default, the credit score goes for a toss. All lending institutions send their repayment records to credit bureaus and the moment a borrower defaults or delays his EMIs, the report reflects that and the credit score plummets. A low credit score hits the borrower’s financial credibility, and influences his/her future borrowing capacity. Even if the borrower manages to get loan approval, the interest rate charged will be high compared to someone with a good credit score.

Conclusion

A loan comes with the promise of repayment of the principal amount borrowed along with interest. It is a simple equation - while the borrower gets to meet his financial goals with the capital, the lender gets extra money as interest. Loan defaults complicate the agreement but it is a part of this lending business. While lenders know the way to get their money, borrowers too have ways to get out of the mess. While borrowers should never forget to pay EMIs, he/she can borrow time from the lender and take necessary steps to set things back to normal to avoid the negative repercussions of defaulting on their loan.