People reach out to banks and financial institutions for loans to meet unseen or expected expenses. They certainly wish to clear their debts with respect to the terms of loan agreement with the bank. However, owing to challenges such as loss of a steady income source, unexpected but temporary extra expenditure or sudden illness, there are times when they cannot pay their EMIs. Rarely, do they occur owing to permanent failure or sudden death of an individual. And during these times, loans increases the distress levels of individuals and families.
A payment default is considered to be a legal offence and should be avoided under every circumstance. Since there are external factors that are beyond our control, payment defaults is often attributed to such factors. Some banks usually don’t chase for the initial 1-2 EMIs that has been missed by the defaulter but starts hounding if this continues to 4-5 EMIs. In case of car loan and personal loan, liberties are not extended even for a single EMI.
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There are ways to manage these temporary events of non-payment. Instead of raising panic and worsening things further, it is advised to approach the problem with honesty and integrity.
Things to do during payment default
- The first step is to take the bank in confidence and share the real reasons of a temporary fund deficit. Talk to your banker about the problem and mutually arrive at an acceptable solution. It is never advised to ignore calls or hide anything from your banker.
- Additionally, consider options such as reducing the EMI and increasing the tenure to ease the burden of monthly outflow of funds. If you’ve a lasting relationship with the bank, they are usually flexible on this.
- If you find the interest rate of your bank high, try to negotiate with them for a slightly lower rate or decide to bank with others that offer a marginally reduced interest rate.
- And finally, it is important to reduce your expenses for future financial stability.
A loan defaulter has to deal with a host of debt collection agents employed by the banks to recover the money. Thus, borrowers should not respond with anger and abuse while dealing with a collection agent. Being polite yet firm is the key. In case the conversations turn abusive, talk to your bank at once. It is important to understand one’s rights since RBI has issued clear guidelines to redress such issues.
Having said the above, it is important to stay clear of these situations since it adversely affects an individual credit score. A poor credit rating suggests that the borrower has had trouble paying loans earlier and may repeat the same in future. Thus, further loan applications may not get approved. In addition, it severely impacts professional associations in future. The matrimonial scope of an individual is also affected since prospective suitors often verify the credit scores on mobile applications while performing due diligence check.
Ultimately, it is the responsibility of the borrower to return the money with interest to the bank since he has taken a loan. No reason is good enough to save a borrower of not informing the bank about the current problem. Do not wait till the banks hands your case to the recovery agents. Communication is critical and therefore both parties must connect to avoid further complications.