Arrear

The legal and financial term "arrears" refers to a payment's situation concerning its due date. The phrase is most frequently used to denote a debt or payment that has not been made before the due date. As a result, a delayed payment is considered in arrears.

The account is in arrears when one or more recurring payments, such as rent, phone, or power bills, are legitimately past due. The account is also referred to as being in arrears if the service has already been rendered but the payment is still due after the designated period. For instance, an employee is paid in arrears since the service must be rendered and completed before any payments are made.

EMI payments paid by a borrower to the lending institution at a set date each month for the duration of the loan are referred to as EMI arrears. When an EMI is past due, the lender transfers the whole original amount of the loan to the borrower's account after deducting a processing charge. In this instance, the lender doesn't take any EMI payments in advance. This sort of EMI is ideal for borrowers who do not have enough finances to make a down payment when purchasing a property, a vehicle, or any device of their choosing.

When choosing this loan EMI payment method, you are not required to make any EMI payments in advance of the loan's disbursement.
In this scenario, the lender will subtract the one-time processing fee before transferring the remaining principal loan amount to the borrower's bank account.
All EMI payments made under an arrears EMI plan which includes both the principal and interest.
Compared to the EMI in advance option, this sort of EMI payment option has a reduced annual percentage rate (APR) for the loan.
In the case of an EMI in arrear plan, the down payment requirement is lower and the principal loan amount and EMI installments are often higher.

EMI payments that are fully missed, late, or avoided altogether are all examples of defaulting. And this can have major consequences and have a bad impact on your credit score. Therefore, having a low credit score can hamper your chances of acquiring a new loan in the future.

The consequences of EMI arrears are:

1. Loss of credit score - Making a loan default will have a bad impact on your credit score, which will indicate to potential lenders that you are not adequately credit-worthy. Or, to put it another way, a low credit score will demonstrate your inability to make timely loan payments.
2. Fees and penalties for late payments - If you are late with your EMI payment, you will inevitably be assessed a late fee, which can be rather substantial, or your rate of interest could increase due to penalties.
3. Loans Interest rates can go up - When you fail to make an EMI payment on time or are late, the interest rate on unsecured loans, such as credit cards and personal loans, may increase.
4. Legal processes - If you ignore the debt recovery company's repeated requests to pay, your case may be litigated in court, as well as an attorney can send you a letter that serves as a final reminder to clear the dues. You will be required to pay the debt and court costs if the court finds the debt to be valid. If you choose to sell the collateral property, then you will be required to use the revenues to partially or fully satisfy the obligation. The court may also authorize the lender to impose a lien against the property.