What Happens When You Miss Paying Your Home Loan EMI?

A home loan is a secured financing option through which you can borrow funds from a bank or financial institution to buy the house of your dreams. Home loans are offered with a flexible tenure of up to 20 years. This means you can avail a home loan for a tenure that suits your budget. A home loan can be repaid in, which you can determine as per your financial capability. However, as life is uncertain, there can be situations when you are unable to pay the EMI on time. It could be due to loss of job, sudden emergency or cash crunch in a particular month(s).

Have you ever wondered, what happens if you miss any EMI payment? If not, allow us to share some information about EMI and its non-payment that you should know about.

What is Home Loan EMI?

EMI or Equated Monthly Instalments refers to the monthly payments that you make towards your loans. The EMI is paid on a fixed date every month. EMI contains both the principal and interest outgo of the home loan amount. The EMI is dependent upon the loan amount, interest rate and tenure of the loan. A longer home loan tenure helps reduce the EMI.

What Happens When You Miss the Payment of EMI?

  • Can lead to penalties

Lenders levy hefty penalties and charges on non-payment of EMI. This penalty is usually a percentage of the EMI. If you have availed a high loan amount, the penalty can be a substantial amount that can further increase your debt burden.

  • Can be recorded in a credit report

Typically, the details of every borrower are sent to the credit bureaus and are used to maintain their credit report. Any default in repayment of the EMI is recorded in the credit report and can adversely affect your credit score. Even a single default on EMI payment can reduce your credit score and can cause you trouble in borrowing money in the future.

  • Can reduce chances of balance transfer

If you miss out on EMI payments for a couple of months, you can face difficulty in transferring your home loan to a different lender. You might be considered a high-risk borrower. It can lead to the rejection of your balance transfer application.

 Steps to Avoid Missing Your EMI Payment

  • Always have an emergency fund that can be used in case of a sudden cash crunch. You can also use this fund to pay EMI when needed.
  • An insurance plan can help you cover the home loan for a short time.
  • You can also liquidate your short-term investments to avoid penalties on EMI default.
  • Lastly, in case you are unable to pay EMI for a particular month, you can talk to the lender and request him to consider your track record before levying the penalty.

Non-payment of EMIs can adversely affect your budget. It can reduce your credit score and lead to penalties. Naturally, it can disrupt the whole monthly budget. Therefore, ensure to borrow responsibly and always have an alternative fund to fall back on. It would be best to calculate your EMI before availing a loan using the home loan EMI calculator.

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