If you can’t pay the EMI of the loan, know what options you have
Failure to pay EMIs on time reduces credit score. But by settling the loan you can get out of the debt trap. It often happens that we take a loan from the bank but cannot pay the installments on time due to job loss, health problems or any other financial crisis. In such a situation, you do not need to panic, because there are many ways through which we can solve this problem.
In this report we will discuss those options in detail. Correct information and wise steps regarding banks and loans will not only solve your current problem but also secure your financial future.
Keep these things in mind
Contact the bank: If for some reason your first installment gets bounced, you should immediately go to the lending bank and talk to the manager there. Usually, in such a situation, the manager advises paying the next installment carefully. But if the reason for not paying the installments is really big, you can apply to put the monthly installments on hold for a few months. Through this application, you will get relief for a few months and then when the money is settled, the amount can be returned. However, the manager’s discretion plays a role in this to a large extent.
Restructuring or Moratorium: Banks can sometimes restructure the loan terms or provide a moratorium for a period of time, wherein you don’t have to pay EMIs for a period of time.
Extending the loan tenure: In such a situation, you can talk to the bank manager and request to extend your loan tenure, thereby reducing the EMI amount that you have to pay every month.
Overdraft or top-up loan: If you are completely unable to pay the loan installments on time, you can apply for an overdraft facility or top-up loan, which can provide additional funds. An overdraft is a type of credit facility that a bank provides to you on your current account or savings account. In this, the bank allows withdrawal of more money than the available balance in the account.
Whereas in a top-up loan, an additional amount is borrowed on top of the existing loan. You get this loan if you already have a loan.
Consolidation Loan: If a person has taken many small loans and is facing difficulty in paying the EMIs, in such a situation you can take a consolidation loan, through which you can merge all the loans into one loan and only one EMI. have to pay.
The advantage of a consolidation loan is that you have to pay the EMI of only one loan instead of multiple loans, which makes it easier to track the monthly repayments. Additionally, consolidation loans often have lower interest rates than smaller loans, which can lower your total interest payments.
Read all the documents carefully: While taking a loan first read all the documents carefully and only sign after understanding. Many times it happens that if you have taken a home loan and for some reason the builder does not deliver the house on time. Even in such a situation you have to repay the bank loan. Apart from this, consider being someone’s guarantor for the loan. Before signing the ECS form, confirm when the possession of the house is due and how many installments are to be paid.
Two Ways to Pay EMI
There are two ways to pay EMI while taking any loan. First way is advance and second way is arrears. Usually the holders deposit the advance EMI, but if required, you can also pay the outstanding EMI. Both advance and outstanding EMI are two different modes of loan repayment, so choose the mode of EMI repayment according to your financial situation while taking the loan. Both advances and arrears have their advantages and disadvantages and you can choose the most suitable option for you.
What is Advance EMI?
In this, one or more EMIs are paid before receiving the loan money. Understand it as when your loan is sanctioned, you have to pay the EMI 1 or 2 months in advance.
For example, suppose you have taken a loan of Rs 1,00,000 and your first EMI is Rs 5,000. If you have already paid two EMIs, you will have to pay Rs 10,000 at the time of loan approval and you will get the remaining Rs 90,000.
What is the outstanding EMI?
Outstanding EMI means that you start paying the EMI after receiving the loan amount. For example, suppose you take a loan of Rs 1,00,000 and the first EMI is Rs 5,000. In this case, you get the full amount of Rs 1,00,000, and after a month you have to pay your first EMI of Rs 5,000.
What is the difference between the two?
By paying EMIs in advance, the interest on your loan amount can be reduced as some of the amount has already been paid. When the EMI is paid in arrears mode, there is no additional payment to be made initially and you will get the full loan amount. However, the time to pay the EMI in the balance may be longer, as the interest is calculated on the entire amount.