Hyderabad: Home loan is one of the most affordable loans available now. We can take this loan from a bank or financial institution that is convenient for us. It is also important to know how the borrower will face difficulties if the installments are not paid on time.
Banks and financial institutions will consider the arrears as a temporary default if the housing installments are not paid for three consecutive months. They will send notices to the borrower. If they still do not respond .. they will take the necessary steps to recover the debt and after three months they will consider it as a major default. They even serve home auction notices on home loan defaulters.
Banks charge a penalty fee of one to two percent of the installment amount when installments are delayed. When a loan becomes a major default .. that loan will be determined as NPA. Prior to this, the banks give several notices to the borrower. Some companies use third party services to collect debt. If the loan becomes NPA .. there will be scope for disputes between the borrower and the creditors. Other loans that you took with the same bank will also be linked to this NPA account. In the meantime, the situation becomes more complicated.
If the installments are not paid properly, it will have a negative effect on the credit score. If you skip EMIs frequently your credit score is are likely to drop. Banks have now linked their interest rates to the repo. In addition, interest is determined based on the borrower's credit score. If you have a low credit score, interest rates are likely to rise. If the banks show an NPA in the case of a major default .. the credibility of the borrower will be damaged.
If you want to change the loan from one bank to another due to high interest or other reasons. The new company may not want to lend to you because the EMI in the old bank has not been paid properly. It can be difficult for you to get a personal, auto, or other new loan.
What is the solution?
When it comes to not being able to pay the installments you can borrow from friends and relatives. If you have fixed deposits and insurance policies, you should avail overdraft facility on them. All these arrears should be settled immediately once the conditions are right. If you find that you have a lot of financial uncertainty, first look at low-interest investment plans. There is no way out except to sell that house to get rid of the debt burden when you feel that there is a total unrecoverable situation.
You can utilise the loan-like insurance policies if the EMI is not paid for a number of years. This policy will bu useful when you are jobless and do not have a regular income. An amount sufficient for a minimum of six months EMI should always be available as an emergency fund. This will not put any financial pressure on you. It is always safer to choose a loan term that has a lower EMI and to borrow according to your means.
"When you feel that the situation is getting worse ... you should contact the bank and think of a solution. Debt restructuring and moratorium can bail you out of the bad situation," according to Adhil Shetty, CEO, Bankbazaar.com.
Also read: LIC offers opportunity for policyholders to revive lapsed policies
