Home loans are long-term commitments where you need to pay EMIs for at least 15-20 years. Financial commitments undergo a sea change during these years and there might be occasions when you can default on your home loan EMIs.
Though most lenders may exercise leniency in case of a single default if informed beforehand, regular defaults may have far-reaching consequences. Read on to know the implications of defaulting on your home loan repayment.
Your credit score takes a hit
Your credit score dives when you default on your home loan repayment. Not only does it reduce your creditworthiness, but it also impacts future borrowing plan. Lenders perceive you as a high-risk individual which dents your chances of procuring any loan. Even if you are sanctioned a loan, it’s accompanied by strict terms and conditions.
Issuance of legal notice
Generally, after 3 consecutive EMI defaults, banks and financial institutions treat the loan given as a non-performing asset (NPA). Following this, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002, they start the procedure to recover the dues. You are served a legal notice and asked to settle your liabilities within 60 days.
Possession the collateral
Home loans are secured mode of finance whereby you to pledge an asset as a collateral. This collateral can be a property, jewellery or even your life insurance policy. If you fail to settle the dues within 60 days, under the SARFAESI Act, financial institutions have the right to take possession of the collateral. Note that under the SARFAESI Act, your collateral can be possessed without the court’s intervention.
Auctioning/selling of the collateral
If you fail to settle your dues even after 60 days, the bank sends you another notice stating the value of the collateral - if it’s a property or jewellery, and its auction/selling date. In case the collateral is a life insurance policy, it is surrendered prematurely to the insurer, the value of which goes to the lender. Note that only endowment or money back policies that have a maturity value can be used as a collateral for availing a home loan.
Banks and financial institutions give you enough time for repaying your loan as auctioning or selling a collateral is a long and cumbersome process, which they want to avoid. In case you know that the risk of default looms large, it’s best to talk to your lender and explain your current position.
If you can convince your lender, most of them may allow you a moratorium period of a few months within which you can clear all your dues. In some cases, they may even restructure your loan by increasing its tenor which will bring down the EMI amount.
Pre-approved offers from Bajaj Finserv on home loan, personal loan and business loan among others make it easy to avail finance. All you need to do is to provide some basic information to know your pre-approved offer.
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