5 MinsMay 16, 2023
When taking a home loan, having a co-borrower can increase the chances of loan approval and reduce the
interest rate. Paying your home
loan on time can help you build
a good credit score. However, if the co-borrower defaults on EMIs, it can have serious consequences for both
of you. Let us understand the various scenarios and consequences in detail.
Penalty for delay
When a co-borrower defaults on their EMI, the bank may impose a penalty for the delay in payment. The penalty
can be a percentage of the EMI or a flat fee, depending on the bank's policy. This penalty is charged to
cover the cost of the administrative
work involved in chasing up late payments. It is important to pay the penalty along with the EMI to avoid
further charges. It also helps maintain a good credit score.
Impact on credit score
A default by the co-borrower can affect the credit score of both parties. A credit score is a numerical
representation of an individual's creditworthiness based on their credit history. A default can
significantly impact your credit score, making
it harder to get approved for loans in the future. It is essential to maintain a good credit score by paying
EMIs on time and maintaining a healthy credit history.
[Also Read:Can you get
a home loan with a low CIBIL score?]
Minor default on Home Loan
If the co-borrower misses one or two EMIs, the bank may consider it a minor default. In such a case, it is
crucial to immediately contact the bank and explain the situation. The bank may offer a grace period or an
option to restructure the loan
to make the repayment schedule more manageable. Restructuring the loan may involve extending the tenure or
reducing the EMI amount, making it easier to repay the loan.
Non-Performing Asset (NPA)
If the co-borrower defaults on EMIs for a prolonged period, the loan may be classified as a Non-Performing
Asset (NPA). An NPA is a loan or advance where the interest or instalment of principal remains overdue for a
period of 90 days. Once a loan
is classified as an NPA, the bank may take legal action to recover the outstanding amount. In such a
scenario, it is advisable to contact the bank and explore options for restructuring the loan or settling the
outstanding amount.
Partial payment on Home Loan
If the co-borrower is unable to pay the full EMI amount, they may choose to make a partial payment to avoid
default. However, this may result in an increase in interest charges and may impact the credit score. It is
important to speak to the bank
and understand the impact of making partial payments on the loan.
Conclusion
To sum up, it is important to carefully consider the implications of having a co-borrower. You should have a
plan in place in case of default. If you are facing such a situation, it is recommended to contact your bank
immediately to explore your
options.
At Axis Bank, we offer a range of solutions to help borrowers manage their home loans, including loan
restructuring and settlement options. Our aim is to provide support to our customers during difficult times
and ensure that you are aware of
all your options. Apply for a home loan with Axis Bank today and rest easy.
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.
