Failed to pay home loan EMIs? Here’s what you need to know

Know the consequences of a default on your EMI home loan

Paying off a home loan is a long-term affair that usually lasts 15 to 20 years. Paying your equivalent monthly payments (EMI) on time is crucial for several reasons.

Yet, during this long tenure, some people often fail to do so due to financial problems or other hardships. Regularly defaulting on your EMI home loan can have consequences ranging from penalties to poor credit scores.

When you first default on your home loan, the lender usually sends an alert via text, email, or even calls to remind you of the payment.

The bank may also apply late fees or late penalties. These penalties are usually 1-2% of the overdue amount, which must be paid in addition to the EMI.

When you fail to pay the EMI for the second time, your bank will send you a reminder and may ask you to make the payments as soon as possible.

However, if you still fail to pay the outstanding amount for the third consecutive time, the bank or financial institution classifies the loan as a non-performing asset (NPA).

Following this, the lender takes legal action against the defaulter under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (SARFAESI).

The bank quickly begins the process of collecting the dues and serves a legal notice on the borrower requesting that the dues be paid within 60 days.

In a home loan, which is a secured loan, the borrower pledges property as collateral. If a defaulter does not pay the dues within 60 days, according to the SARFAESI law, the lender has the right to take possession of the collateral.

Here, the bank can own your pledged property even without the intervention of the court.

After 60 days have elapsed and the borrower has still not paid the fee, the lender serves a notice on the defaulter stating the value of the pledged asset and its auction date.

It should be noted that in addition to these consequences, defaulting on your EMI home loan also affects your credit score and, in turn, impacts your future borrowing.

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