New Delhi. Loans and EMIs are such complicated matters that even a day’s delay can prove to be very costly. Missing an EMI can lead to severe penalties and a bad impact on your credit score.
Lenders have tightened their policies, so it is very important for the borrower to know about the impact of late payments and ways to avoid them.
Penalties for late EMI payments can also vary depending on the lender and the loan terms. For example, banks may charge a late payment penalty and interest on the outstanding amount. These penalties add up quickly, making it even more difficult to repay your loan. However, as per the new RBI rules, an account will be considered overdue only if it is overdue for more than three days from the date mentioned in the billing statement.
How banks charge?
Every bank charges penalty and interest differently. For example, HDFC Bank charges a penalty ranging from Rs 100 to Rs 1,300 while Kotak Bank charges 8% of the defaulted amount. ICICI Bank also charges a penalty ranging from Rs 100 to Rs 1,000. To avoid interest on interest, borrowers must strictly follow the repayment schedule and terms so that they do not go through a decisive financial upheaval in their life and investment career.
What is the impact on credit score?
Missing an EMI can have a serious impact on your credit score. The closer the date of default, the greater the damage. Generally, a credit score is based on the last 36 months of credit history. Hence, it is important to act quickly before maximum damage is done. Paying off the missed EMI as soon as possible and setting up auto-payments can prevent future defaults. This approach can prevent major damage to your credit score and credit utilisation ratio.
What to do about penalties and credit score
If you have not paid any EMI, the first step to resolve the issue should be to call your bank’s customer care. Open and prompt communication is very important in this case. Most banks have policies that waive late fees or provide temporary relief. Contacting customer care on time can reduce the blow. You can also avoid damaging your credit score by talking to the bank.
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