The Cost of Missed EMI Payments

After taking a loan, it is essential that you pay your EMIs regularly without any delay. If you miss the EMI payments even by just a single day, it will not just result in a fine but will also impact your credit score. At Rupee112, we have written this short blog to help you with all the aspects of missing EMI payments. 

Consequences of Missing EMI Payments:

1. Crashes your credit score:

If you miss your EMI even by a single day, it will lower your credit score by nearly 50 to 70 points. This sudden drop in your credit score will impact your financial creditworthiness and may also block your new credit applications. That’s why you should always make timely payments of your EMI.

2. Accumulation of Interest and Penalty Charges:

There is a late fee that you have to pay if you miss an EMI payment. Though it will be a fraction of your EMI, overdue EMIs also attract penal interest that also compounds. In the long run, these developments result in a pile of costs.

3. Long-Term Delay Results in Major Default:

You should be aware of the fact that in financial institutions, if you delay the payment for under 90 days, then it is considered a minor default. However, if the delay crosses the threshold of 90 days, then the loan will turn into a non-performing asset (NPA). Thereafter, both credit bureaus and banks will flag this across the entire system. Once classified as an NPA, your loan record is polluted for several years, causing issues with future personal loan and credit card applications.

4. Legal Action along with Recovery Calls:

Generally, the financial institutions wait for 60 days and then initiate the process of recovery calls and legal actions. In certain situations, the borrowers also have to face recovery agents at their doorsteps. If the borrower still continues to default, then it can lead to legal proceedings under the Negotiable Instruments Act of 1881. 

5. Long-term Effect on Borrowing Capacity:

If the credit score is continuously depleting along with the NPA listing, then it may hugely affect your eligibility for future loans. With personal loan defaults still common among private banks, debtors may struggle to obtain fresh credit or may only be able to secure new loans with extremely high interest rates and non-flexible repayment terms and circumstances.

How to ensure regular EMI payments?

You can take the following steps to ensure your EMI payments:

1. Automate EMIs:

The first step is to automate your EMIs by asking your lender to create an auto-mandate. Thus, the EMI will automatically be deducted from your account.

2. Talk to your lender.

You can also ask your lender to restructure your EMIs or moratoriums if you are cash-strapped.

3. Build an Emergency Buffer:

If you are unsure of your steady income, then you must keep an emergency buffer for secure repayment consistency.

4. Check your credit report.

You can spot unreported defaults and correct errors promptly.

In this short blog, we have gone through all the major consequences of missing an EMI and what are the various ways are to ensure timely EMI payments.