Defaulting on your home loan EMIs? Here is what you can do
Everything was going fine for Ankit – back to his hometown, owner of a dream villa, VP at his new firm. He was glad to be back to his roots after living in UAE for fifteen long years. Ankit had easily availed a loan from the bank to purchase his home. He would pay the EMIs regularly until one day the worst happened to him. Due to a medical emergency in his family, Ankit was not able to pay his EMIs on time.
Consider Ankit’s plight. Imagine yourself in a situation wherein you were not able to pay your EMIs due to a personal emergency. Usually, banks do not consider you as a loan defaulter if you skip one EMI. However, if you do it for three consecutive times, you will be constantly sent reminders of the same. If you continue not to respond, the bank will send you a legal notice and you will be labelled as a loan defaulter. So what now?
Banks usually pursue to recover their dues from the borrower for five to six months. If in vain, the bank can seize your property and arrange for it to be auctioned. In addition to this, your credit score will fall drastically. But you need not bury your head in the sand. Here are some of the necessary steps you can take if you miss your EMIs:
Contact your bank:
Defaulting on your loan is not the end of the world. As soon as you know that you are going to be facing problems in meeting your loan repayment schedule, contact your bank. If you ignore the issue, the situation will only worsen. But if you are keen to pay your EMIs, then let your bank know of your good intentions. If you have a good repayment track record or if you have a genuine problem it is likely for the bank to offer you some leeway.
Ask for options:
It is important to convince the bank of your ‘Genuine Intent’ to repay. You can ask the bank to consider deferring your payment and ask for a grace period. If the bank is satisfied that you will start paying the EMIs soon, it might consider your request. You can ask for restructuring or refinancing your home loan by taking into account your future income. You can also offer your savings as a collateral. By increasing the tenure of your loan, your repayments will be of smaller amounts and easy to manage.
You can visit a counselling centre and seek financial advice. Counselling centres will advise you how to talk to your bank about various repayment options. They will also help you to draw a budget to meet your repayments on time. Some banks have in house counselling centres for the same.
Budget your finances:
Draw out a budget that you will be able to adhere to. Calculate your monetary inflows and outflows. Identify areas where you need to curb expenditures. For e.g. stay away from luxuries till your finances are back on track again. Keep aside six month expenses in a liquid fund. This will help you tide over crisis situations.
Attaching a property for loan default is a cumbersome procedure and banks usually keep this option at arm’s length. The last thing a bank wants, is to increase the number of Non-Performing Assets (NPAs) in its books. If you default, the bank’s Non-Performing Asset (NPA) ratio increases, which will reflect poorly of the bank’s performance. Hence, banks prefer to recover back their loan than repossess you property. The best option for you would be to communicate with the bank of your troubles and convince them of your ‘Genuine Intent’ to repay.