Borrowers should make it a habit to pay the EMI before the due date. Otherwise you will have to face many problems. If you delay you are EMI payments your credit score will turn negative. Penalties are relieved depending on the loan. In case of late EMI, banks will charge a penalty along with the normal interest. GST will also be added to the fine. Let’s see what happens if we delay in paying EMI‘s.
When will the Fine be imposed ?
If you delay the EMI for more than a month, you will be charged a penalty of 1% to 2% on the delay depending on the amount you pay the bank. Penalty may vary depending on the loan
When is a Non-performing assets ( NPA) determined mind?
Banks categorise yeah my default into two categories- minor default and major default. EMI delays of up to 90 days fall under the minor default category. Missing three consecutive EMI is a major default. Banks levy penalties in case of minor default. Since reminder notice detailing loan EMI‘s. Also report EMI payment delay to credit bureaus. In case of major default of non-payment of principal or interest for more than 90 days, the bank may treat your loan as a non-performing asset (NPA) and initiate a recovery process. The bank will send you a notice before making you are loan as NPA. If you deposit the required amount within the deadline specified in the notice, you can avoid converting your loan into NPA.
Impact on credit score:
A late payment will appear on your credit report. Missing a single EMI can reduce your credit score by almost 50 points, depending on the loan and other factors. Regular repayment of EMI and taking corrective actions will gradually improve your credit score. If your loan is a classified as NPA, it will damage your credit score. Will appear on your credit report. It will significantly reduce your financial ability to take out a new loan in the future.
Does the bank make any settlement in the case of NPA?
After declaring the outstanding loan as NPA you may be given option to settle the bank loan to recover the entire amount due, including interest and penalties. A debt settlements can seem financially easy. But they can leave a long-term car on your credit worthiness. If you have a debt settlement on your credit report, banks will be less inclined to lend in the future. So, if you are alone is declared as NPA or is in the process of becoming NPA, try to get time extension or loan restructuring from the bank.
How to avoid delay in EMI payment ?
It is always better to make a plan to repay your loan. Instead of turning your loan into a MNPA, you can liquidate some of the investments you have and settle the loans. Having an emergency fund is essential to overcome such financial difficulties. Sometimes the bank may give you relaxations like giving time to repay their loan, please structuring the loan et cetera. Avoid taking too many loans at the same time. Don’t take out one loan to pay of another. This leads to debt trap. If you find it difficult to repay the EMI, you can at least paid the interest to avoid classifying you are alone as NPA.