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What is the penalty if I miss an EMI payment?

There are times in life when one is faced with an unavoidable financial crunch and as a result may end up missing some EMI payments. In such cases, your bank will allow you pay the missed EMI with that of the next month. But as a customer, you should know what is the true cost of missing an EMI.

A hefty late fee

It may not seem like a large amount on a month on month basis, but calculated on an annualized rate of interest it can work out to be a substantial amount, that you will be required to pay as a penalty. Let’s understand this with an example. Suppose you have a Rs. 40 lakh loan at an interest rate of 10.5% and your tenure for the same is 20 years. Your EMI in this case works out to be Rs 39,935. If you miss a single payment on your mortgage, you pay an unnecessary penalty payment of Rs. 799 (2% per month) at an interest rate of 24% per annum.

You may lose your eligibility for a balance transfer

If you miss the EMI payment on your mortgage three or more times, you will not be allowed to switch your loan to another bank or housing finance institution, even if there is a better opportunity available. No bank will be willing to take you on as a customer as you will be put in the high risk category.

Lowers your CIBIL score

Missing even a single EMI payment has a negative impact on your CIBIL score. Most of the banks and lenders in India now report your repayment behavior to CIBIL and other credit bureaus. A single default on your home loan will shave off 50-70 points on your CIBIL score at one shot.

Sometimes, people may miss payments because of sheer negligence. Following are the cases in which you may end up missing an EMI payment:

  1. Bounced cheque- One of your postdated cheques (PDCs) may have bounced or a direct debit may have been dishonored because of insufficient funds in your account. Some banks may charge you a penalty (of up to Rs. 500 for bounced cheque) in addition to the 24% per annum interest on the amount overdue.
  2. Non submission of fresh PDCs-You may have slipped up in submitting fresh PDCs to the bank after the completion of a 12 month cycle. This is a common mistake that most borrowers make. To make sure you do not miss an EMI payment because of your carelessness, make sure you set a reminder about when your PDCs are coming up for a renewal.
  3. Mistakes on your cheques- Mistakes made on a postdated cheque too can cost you dearly. You may be at peace because you know that all your PDCs are up to date, but if you have made a mistake while writing out the cheques, such as illegible handwriting or a signature mismatch, your cheque will bounce. It is therefore wise to be attentive and focused when you are filling out your PDCs for submission.

Missing a single payment on a housing loan EMI may have direct consequences as you can see here. Taking on a home loan is a huge responsibility and you will have to be up to speed in order to service it well.