Missed EMI Payment? Home Loan Cheque Bounce? Don’t worry!
To buy our own house is a dream project of anyone’s life. For this purpose, people take maximum financial burden and exhaust their all savings. To purchase their dream house, many people opt for Home Loan. However, sometimes, due to various reasons, not able to service their Home Loan EMI on time. Sometimes you missed emi payment or unable to pay home loan emi.
Here, we will discuss about the consequences of such situation, bank’s recovery process and option you have to handle such situation.
Why Home Loan cheque bounce by customers? Have you missed EMI Payment?
Ignorance/negligence:
Many people are careless in their attitude and do not pay much attention on their Home Loan EMI’s Due date. Some people get their salary by 7 thof each month and opt for EMI date as 1 stof each month. In such, situation, every time their EMI gets bounced. Sometime, due to busy schedule also, some people forget to pay EMI on time.
In such situation, it is always advisable to do ECS payment of EMI or give PDCs (Post Dated Cheques) to your Banker with standing instructions for payment of EMI.
Genuine financial difficulties:
Sometime, you may not be able to pay your Home Loan EMI due to loss of job, some health issues or accident etc. In such situation, you should contact your Bank and try to explain them your genuine difficulties. Try to convince them that once you will be fine, you will regularise your payment towards Home loan. In such scenario, Banker can reschedule /restructure your loan.
Wilful defaulters:
Some people, even though having enough resources, bounce Home Loan EMI on the excuses of loss of job and health issues etc. They are not aware about the consequences of their such action.
Error of Bank:
One of the reasons of bounce EMI is also the error of lending institution in placing your ECS Mandate. However, such incidence happens very rare.
Consequences of missed emi payment
Mental stress:
When you miss EMI payment or your home loan cheque bounce, you get often calls from your lenders, which is quite stressful.
CIBIL Score will get hampered:
If you missed EMI payment only once and pay it within 2–3 days, it won’t affect your CIBIL. However, such incidences, if happen frequently, will definitely affect your CIBIL. When you miss EMI payment by 30–60 days, your CIBIL score gets reduced by 10–50 points. If you unable to pay home loan emi by 90 days, the account will be downgraded to NPA category and CIBIL Score affects drastically.
However, in case of NBFC, the NPA norms are 180 days instead of 90 days. Means your account will be downgraded if you miss emi payment for 180 days.
Penal Interest and extra charges:
When your home loan cheque bounce, you have to bear home loan emi bounce charges. Further, if the default continues for further period, you are bound to bear the 2% penal interest over and above your regular rate of interest also for missed emi payment.
If you clear your all overdues but forget to clear the penal interest and bounce charges, your CIBIL Score will show this amount as overdue and score will be affected.
Further, interest will be charged on the said overdue amount also on the next date of interest application means interest on interest. Hence, when you clear your all dues alongwith interest and charges, you need to sure yourself by obtaining a statement of account from your Banker.
No Bank / Financial Institution (FI) will give loan in future:
Even though you don’t require the funds now, you might require in future. At that time, you won’t get loan from any lending institution because of this kind of your past record appears in CIBIL Score.
Handle awkward situation and Legal issues:
Most of the time recovery agencies’ people visit your home for recovery and this may put you in awkward situation in your social surrounding. Further, the Bank can file recovery suit under SARFAESI Act or CIVIL Suit or take action under Section 138 of Negotiable Instrument Act (NIA) for bounce EMI or take all the actions simultaneously. You left with no option but to bear the stress of these legal issues. Action under Section 138 of NIA will put you behind the bars also.
Loss of assets:
If you continue your default and your account has been downgraded to NPA category, you may lose your House also because of auction under SARFAESI, Act.
Bank’s Recovery Process
Banker/Recovery Agent is also a human being; they also don’t like to disturb anyone for money. However, they do so because of their job’s demand. Hence, they try to manage it, as much as, possible. Let’s understand the recovery process of Banks.
Pressurising calls and Notices:
When you miss your 1 stEMI, you get a call from your lending institution before your next EMI date to regularise your Home Loan Account immediately.
If your 2 ndEMI also or your home loan cheque bounce for 2 ndtime and you won’t pay your EMI by end of that month, your account will be classified as SMA-2 (Special Mentioned Account). SMA-2 means Overdue for more than 60 days. SMA — 2 classification of your account, will largely affect your CIBIL score.
Hence, from now you will be having only 30 days in your hand to save your account to be slipped into NPA category as per 90 days NPA norms of the Bank.
In this period, you often will get calls/personal visits from lenders pursuing to regularise the account.
In this period, you have one option that you can avoid the 90 days norms by paying the critical amount that is atleast one-month EMI. This will save the account to be slipped into NPA category.
Once the account slips into NPA, you have to clear all the overdue amounts means all EMIs and penal interest immediately to avoid any legal hassles.
Report to CIBIL:
Banks submit the information to CIBIL by every 30–45 days intervals. Hence, irregularity of your account reflects in the CIBIL Score and your CIBIL score gets hampered immediately. To know more about CIBIL, read my article on How to improve your CIBIL Score .
Notices to Borrower, Mortgagor, Guarantor, filing of recovery suits in DRT(Debt Recovery Tribunal)/Civil Court or initiate action under SARFAESI Act:
As soon as a loan asset is declared NPA, the Bank’s Officers immediately approach the defaulters for regularization of loan accounts and/or repayment of bank dues.
Then a comprehensive notice to be issued to the borrowers/guarantors/mortgagors for repayment prescribing time limit of 30 days.
If the borrowers/ guarantors/mortgagors respond positively and demonstrate seriousness and sincerity in their repayment efforts, the Bank functionaries may analyze/examine their response with complete care and try to find out a genuine borrower or an evasive and time-gaining borrower.
In case it is established that the borrowers/guarantors/mortgagors are seriously interested in up-gradation of credit facilities or repayment of bank dues within a specified time-frame.
In such a situation various options shall be examined on merits of each case without any delay so that the economic value of the assets does not deteriorate with the passage of time.
On the other hand, if the borrowers/guarantors /mortgagors do not respond positively to the personal meetings and/or recall notice, Banks immediately initiate legal action under SARFAESI Act, 2002 so that the security interests of the bank is enforced under the said Act.
In respect of debts amounting to less than Rs.10 lacs, or in places where DRTs are not established/have no jurisdiction, to recover the amount the bank has to necessarily file suit in the court of competent jurisdiction.
Action under SARFAESI Act:
L egal course is/has to be the last resort of recovery when all other efforts and measures (motivation, meetings, personal contact, social pressure, adjustment through compromise/OTS etc.) are fully exhausted/exploited.
The process / time period stipulated under SARFAESI Act for recovery of Bank’s dues are as under:-
Attachment Order:
If the Banks think that the above process is taking lot of time and find that the assets may be harmed by the defaulter.
In such situation, the Banks can opt for attachment order from Court of Law and attach the secured assets.
Negotiation Instrument Act:
The Banks can also file the suit under Section 138 of Negotiable Instrument Act for bounced EMI. The provision under the said act can even put the defaulter behind the bars.
Option to handle such situation when you missed emi payment
Use of emergency fund:
It is always advisable to avoid such situation, use your emergency fund specifically created for such situation. Emergency fund means you should keep aside atleast 6 months Home Loan EMI in the form of Fixed Deposit or any liquid instrument to handle the situation like loss of job or illness etc.
Take loan insurance:
Many Banks offer insurance at the time of disbursement of Housing Finance which ranges from 6–9 months EMI to handle situations like loss of job or illness.
Many Banks also offer insurance for your entire loan liability in case of your death. In such insurance, in case of your death, the loan liability shall not be passed on to your legal heirs. People usually opt such insurance to make our family free from home loan liability.
Liquidate your assets:
To avoid such situation, it is better to liquidate whatever you have. You can liquidate your gold, car, mutual funds, fixed deposits or even your home etc. rather to lose your house property to pay your missed emi payment.
Contact your lender and find a settlement option:
If you have genuine financial difficulties and unable to pay home loan emi, discuss your issue with your lender. Discuss your lender for settlement option like one-time settlement option under OTS (One Time Settlement).
In such situation, lender may fix one lumpsum amount and waive certain portion of interest to adjust your Housing Loan account.
However, your CIBIL / Credit Score will be affected by such type of OTS.
Restructuring of Loan:
How to reduce home loan EMI. If lenders find that your intension is genuine, he can restructure your loan. Restructure means change in the terms of your loan like increase tenure, reduction in rate of interest and reduce EMI of the loan.
This will enable you to come out of this situation. Your CIBIL/Credit Score will be affected by restructuring. However, still I find the said option more viable to save your home.
How to stop SARFAESI Act — Sell off your property by own:
When you are not able to repay your Housing Finance or Bank may auction your property under SARFAESI Act, in any such situation, it is advisable to sell your property by your own and repay the Bank’s dues.
When Bank auctions any property, they are only concerned about their loan dues. Hence sell your property at reserve price which will be adequate to adjust the loan. However, if you sell your property at market rate, you will get the extra funds remained after Home Loan clearance.
Takeover of Home Loan option:
When you find difficulties in paying or unable to pay home loan emi and if you have age in your hand. Then you can switch your home loan to other lender for longer tenure and lower rate of interest. This will reduce your EMI.
Extra pay when condition is good:
It is always advisable to pay extra when your condition is good. This will create buffer for your bad period. Do you know that by paying one extra EMI every year, you will be able to reduce your tenure by 5–6 years.
Similarly, if you pay extra 5% or 10% every year, you can reduce your tenure by 12 and 15 years respectively.
Originally published at https://loans-review.com on December 8, 2020.
