EMI or Equated Monthly Installment is a payment arrangement that is commonly used to finance high-value purchases like homes, vehicles, and appliances. The payment plan for EMI is designed in such a way that the entire cost of the product is divided into smaller payments, and it can be repaid over a fixed period. EMI is a fantastic facility provided by many banks and other financial institutions crafted to reduce the financial burden for the customers. However, it is common in the industry that people miss the EMI installments. In this article, we will discuss what happens if EMI is not paid on time.
What is an EMI?
EMI stands for Equated Monthly Installment, which is a fixed amount paid each month to repay a debt. The EMI includes the principal amount and the interest charged on it. EMI payments are typically used when buying big-ticket items, such as cars, homes, or appliances, where the total cost of the item needs to be split into smaller payments spread over months or years.
Bajaj EMI Card Eligibility
Bajaj Finserv is one of the leading financial institutions in India, providing the Bajaj EMI card. This card is aimed at allowing people to make big-ticket purchases easily and help people with affordable EMI options.
The eligibility criteria for Bajaj EMI card are quite simple. An individual should be above 21 years of age and can avail the card by submitting their KYC documents and an address proof. The card comes with a pre-approved loan limit that varies from individual to individual.
What happens if an EMI is not paid on time?
There can be various reasons why an individual may not be able to pay their EMI on time; some of these are unforeseen circumstances such as medical emergencies or loss of income. However, it is essential to know what happens if EMI is not paid on time.
Late Payment Charges
If you miss an EMI, the financial institutions charge a late payment fee. This late payment fee generally ranges from 1% to 3% of the EMI amount. Banks and financial institutions have different policies regarding late payment charges and interest rates applicable.
For example, Bajaj Finserv charges a penal interest of 2% per month on the unpaid amount, and a minimum of Rs. 200 up to a maximum of Rs. 1,200 as late payment charges.
Impact on Credit Score
The delay or default in making EMI payments affects the credit score of an individual. Credit score demonstrates creditworthiness and good repayment track record. Banks and financial institutions refer the credit score to execute various loan applications and credit card approvals.
Missing EMI payments brings down your credit score and affects your creditworthiness in future loan applications and credit approvals.
Legal Action
Not making timely payments towards the EMI instalments can attract legal actions. In the event you haven’t paid the outstanding amount, the financial institution may take legal action to recover the amount you owe. Once the financial institution files a lawsuit, the judicial process begins, and the legal proceedings begin.
Pressurizing Debt Collection Agencies
If an individual doesn’t pay their EMI within the permissible time, financial institutions are authorized to employ debt collection agencies to recover the defaults amount. Debt collection agencies may use various methods to pressurize the individual to pay, including making harassing phone calls, sending threatening emails and messages, etc.
It is essential to be aware that all debt collection agencies are regulated by the laws, and the individuals have rights. A debt collection agency can not make threatening calls or be employed to recover an unpaid EMI amount.
Asset Repossession
If an individual defaults on their EMI payments, the financial institutions may resort to asset repossession. In the case of a car loan, banks can repossess the car if the EMI payments are not made within the stipulated time. Similarly, in the case of a home loan, the financial institution can put a lien on the property, and the property can be repossessed if the EMI is not paid.
Conclusion
In conclusion, missing an EMI payment can have severe consequences and affect your creditworthiness, and in some cases, it can even lead to legal action. However, every financial institution has a different policy when dealing with defaults and late payments. It is essential to read and understand the loan’s terms and conditions before availing of the loan. Additionally, it’s equally critical to communicate with your lender proactively if you are unable to pay your EMIs on time.
Finally, it is recommended that individuals should avoid defaulting on their EMI payments and make timely payments to avoid late payment charges and legal implications. In case of financial distress, it is advisable to speak with your lender and find a mutual solution rather than defaulting on payments.