One of the top benefits of EMIs is that you can purchase expensive products and pay for them in small amounts every month. The EMI amount remains constant throughout the entire loan tenure. It helps borrowers to plan their financial commitments and allows them to create a monthly budget.
Despite meticulous planning, unforeseen circumstances could arise which can hinder timely EMI payments. These events could be a job loss, a salary reduction, or any unexpected expense that can disrupt one's financial stability, leaving insufficient funds to meet EMI deadlines. Borrowers are unable to make their EMI payments promptly in such situations. If you currently find yourself in such a situation, here is a guide that can help you handle this situation better.
Communicate with the bank
Payment default is not an unusual situation for banks, and they are willing to help. Compile a file containing your payment history, loan details and notices, which will be essential during your discussion.
Communicate the genuine reasons for your non-payment of EMI, express your commitment to repayment, and ask about available solutions. If you have previously maintained a good payment record, highlight it to strengthen the bank's trust in you.
Banks understand situations like job loss, illness, or excessive debt and are willing to work together to find a solution.
Ask for a grace period
If you are in a situation where you expect a positive change in your financial circumstances in a few months. One such situation can be getting employed and gradually being able to repay your loan.
You can approach your bank to discuss the possibility of deferring your payments. Given the situation, the bank may allow you a grace period.
Also Read: Missed your loan EMI? Pay instantly using UPI
But once this grace period is over, your EMIs will resume. They could either be on the original terms or based on the newly negotiated terms. Late payment penalties will be added to your EMIs for payments made after the due date.
Restructuring your loans
Another reason for falling behind on your EMI payment could be that you find yourself in a situation where your EMIs are too high. It could be due to rising interest rates, increased personal commitments, or a combination of factors affecting your financial balance. To rectify this situation, banks can offer you a restructuring plan.
If you're currently paying Rs. 10,000 per month for a specified loan term, the bank might propose a lower EMI, at a slightly longer tenure. This adjustment can provide you with some financial relief briefly.
Lump sum settlement
Banks may consider one-time or lump-sum settlements for outstanding dues on a case-by-case basis. In such arrangements, they may waive certain charges or a portion of the outstanding amount and allow you to settle the remaining balance through a lump-sum payment. Opting for this approach can have adverse effects on your credit score.
Liquidate your assets
If none of the above options work out, borrowers could consider liquidating their investments/assets. It could involve converting your deposits or mutual funds into bank balance to cover your EMIs.
It is a tough situation for the borrower and they must put a good amount of thought before they choose this option.
Also Read: 3 reasons why you should pay your loan EMIs on time
Conclusion
Undoubtedly, one should prepare themselves financially so that they do not have to consider the above-mentioned options. However, if you do encounter such a situation, avoid panicking as it won't yield any results. Instead, your time could be better invested in open and constructive communication with your bank to come up with a workable solution.
A fundamental principle of financial planning is the creation of a rainy day fund. It is essential to incorporate your EMIs into this safety net and allocate a reserve of at least six months to two years' worth of expenses in a secure and easily accessible liquid fund. This precautionary measure is a vital resource in times of emergencies.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
