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Have You Missed An EMI On Your Loan?

Monday, September 07, 2015
By Brijesh Parnami

Brijesh Parnami is CEO, Destimoney Advisors

Here’s how to deal with it

Availing a housing loan or any other loan from the organised financial and lending institutions has become an essential part of our everyday lives.  The loans, while bring in tremendous value in helping the borrower own a house or any other asset, it also carries with it the enormous responsibility of timely repayment of instalments – referred in the common parlance as EMI – to the lending institution. The EMI – Equated Monthly Instalments – as they are called, are the structured monthly instalments to be paid the lender.  At the time of taking a decision to give the loan, the lending institutions do the necessary due diligence of the applicant’s financial position and then decide to give the loan.  The presumption being that someone with a certain monthly income generation, would be able to service an EMI of a certain amount.  Further, any normal borrower, has all the intention to repay the loan in time, unless it is a case of intentional fraud.

However, as is seen, everybody faces exigencies in life, that bring with them sudden financial requirements.  These could be in the form of a job loss or a medical emergency or any additional personal expenditure such as higher education etc. Such events disrupt the financial situation and it may so happen that the individual is not able to service the monthly instalment for one or more months. While this could indeed be a genuine problem, it must be realised that the consequences of the same could be serious.  

First and foremost is the credit worthiness, reflected in the form of credit score in the credit bureau records falls.  When the credit score falls, taking further loans in future could become difficult. In order to protect the credit score, one must make every attempt to make good the EMI default. This can be done by resorting to temporary borrowing of the EMI amount from a friend or another family member.  It is important to make this effort and pay the EMI so that the credit score does not get adversely impacted.  

Secondly, it would be important to proactively call the finance company and keep them posted of the difficulty that one is going through. When the borrower calls to inform the lender of his financial position, the attitude of the lending institution towards the borrower remains respectful and trusting.  The lending institution could then extend all the required cooperation to the borrower and be more understanding in dealing with him in the period of default. It may not mean that they would give any concession, but they would not unduly bother the borrower with too many phone calls and personal visits.

Thirdly, plan alternatives to make good all the default amounts as early as possible.   Where possible, reduce the monthly household expenses and make conscious efforts to increase savings.  These may seem difficult but once an effort is made, the small savings that come out of these efforts, over a period of time, bring much relief.  You may be required to break some other saving that is maturing at a future date to service the EMI. That may still be worthwhile, because the penal interest charged by the lending institution, may be higher than the return that you may get on your investments.

Fourthly, share the situation in a transparent manner with people at home – your family.  Yes, it would be difficult to break this news, but this is still better done now, rather than doing it when the problem has become bigger. The family that is taken into confidence at an earlier stage, would also be more cooperative and helpful in dealing with it.   

Fifthly, have faith in the dictum that ‘This too shall pass’.  Difficulties come and go. But if we have an attitude that whatever be the difficulty, we would not deviate from our responsibilities, the difficulties trouble us for some time and then vanish.  Have faith and keep your chin up. Remember the words of a great philosopher of the twentieth century, ‘the world is on my side, so long as I am true to the best in me.’   

The above steps, taken consciously and with a sense of responsibility, can surely help a person face the situation of default in a more intelligent manner and with clarity.

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