What happens if you default on your home loan EMI?

If you have somehow missed paying the EMI on your home loan, you will have to bear some penalties while paying the missed amount along with the next installment. You must be aware of your financial obligations and pay your dues on time. Here is what will happen when you fail to pay EMIs on time.

Late fee or penal interest
First and foremost there will financial penalty. You will be charged a late fee which is around 1-2 % of the EMI. Also, in addition to the late fees you may have to pay a penal interest on the amount overdue for the default period.

Harms your credit score
If you skip an EMI, it leaves a negative impact on your financial reputation, as this will get recorded in your credit history. Any default will hit your credit score significantly. Your creditworthiness also depends on whether you are a major defaulter or a minor defaulter.

For instance, if you failed to pay the EMI after your last payment, for a period of 90 days and take immediate remedial action, you will be classified as a minor defaulter. You need to make sure that you pay off missed EMI on the due date and don’t become a habitual defaulter.

Creates a hurdle in getting loans
If you are a major defaulter or your credit score is low, lenders may not approve your loan application or charge you a higher interest rate since the credit risk is higher.

In case there are is a valid reason, like job loss or any unforeseen medical issue, it is always recommended to bring that to your lender’s notice and find a solution. There is a period of 90 days given to pay the dues to avoid being classified as a non-performing asset. If you still fail to pay, the lender can follow a legal framework and might even set your property for auction. Hence, experts suggest lower EMI options and better management of finances to avoid default.