A borrower who fails to pay his EMIs faces financial consequences. It also affects the reputation of the borrower. The financial repercussion is not restricted to the EMI amount. Financial institutions charge a late fee and penalty amounting to one or two percent of the EMI amount.
Additionally, some banks charge a penalty on the outstanding amount for the default period, which can be considerable. However, the brunt of missed EMI payments is more on the defaulter’s reputation. Even a single missed EMI will show in their credit history and affect the credit score by approximately 50-70 points. As credit score plays a vital role in future borrowings, failure to pay timely EMIs can result in loan rejections in the future.
The only way to avoid defaults in paying EMIs is by managing them better, and this blog shows you how to do that.
Plan your Home Loan
You need a substantial amount of money to buy a house, which is why purchasing a home cannot be an on-the-spur-of-the-moment decision. It is better to have a substantial part of the price of the house as savings to pay as down payments to reduce the loan amount and bring down the interest amount. Use an online calculator to estimate your home loan EMI and plan your down payment. Before applying for a loan, borrowers must list monthly expenses and income to calculate what they can comfortably pay as monthly EMIs. Also, borrowers must save any surplus after meeting expenses and EMIs and make investments with high returns to help pay the monthly EMIs during financial emergencies.
Choose Housing Loan Interest Rate Cautiously
Compare lenders to find the most attractive interest rates and offers. Financial institutions in India offer online home loan calculators. Borrowers can calculate the monthly EMI amount from the comfort of their homes. They must also research the factors that can affect the interest rates before deciding on the type of interest rate (floating or fixed). Home loans with longer loan tenure offer lower interest rates.
Choose a home loan with a longer loan tenure with zero prepayment charges. For instance, a Home Loan from PNB Housing is for a tenure of thirty years with no prepayment charges. Initially, you can pay affordable EMIs, and when you have sufficient funds, pay more significant sums as EMI by opting for the prepayment facility without extra charges. Cut down on unnecessary spending and use the rise in salary or bonus to pay at least one extra EMI every year. The loan will thus become cheaper for the borrower, and he can close it faster.
Reduce the Burden with the Refinance Option
The borrower transfers the home loan balance to a lender who offers lower interest rates during the home loan tenure. Lenders provide the refinance option at competitive rates. Borrowers must refinance the loan only if the new lender offers lower loan rates than they are currently paying.
When a borrower chooses to use the refinance option, the new lender will close the loan with the old lender. The borrower will pay a lesser EMI amount because of the new lender’s low-interest rates.
Alternatively, the borrower can manage their home loan EMIs by taking a top-up loan at lower interest rates than the existing loan.
(India CSR)
