How Can I Save my Credit Score as a Loan Defaulter?

Buying a home will probably be one of the most expensive purchases you will ever make. To fund this purchase, you can avail a housing loan. A Home Loan is the best option when it comes to financing a property without creating a dent in your savings.

For many, the EMIs of a Home Loan constitute a large part of their regular expenditure. So, what would happen if you’re unable to pay off the EMIs? This can be a possibility in case you lose your job, a medical emergency, depleting savings, or a family issue. Whatever the reason, it is best to fix it as soon as possible.

What if I am a Defaulter?

If you miss two or three payments, will the bank seize your property? You must remember that when you miss out on your EMI payments, the interest will be added to your overall outstanding balance, which means your loan will become even more expensive. However, if you miss payments for more than six months, the bank will take over your house.

If you become a defaulter, the lender will begin taking possession of your assets. They can arrange an auction to sell your flat or house and recover the outstanding loan amount. Apart from this, your credit score will also take a beating and you might not be eligible to take loans in the future. Imagine none of the Home Loan eligibility calculator is going in your favour! This might be the worst thing that could happen to you. So, if you want to save your house and credit score, follow the steps given below.

#1 Never Panic

Staying calm and thinking logically is the best thing to do. There are a number of solutions to help you get back on track. Remember to not ignore the situation, or things will escalate from there and further complications may arise. It’s likely that your bank will follow up on you if you miss a payment.

#2 Contact the Lender

If you can’t pay your EMIs, contact your lender! If you’re serious about paying back your dues and having a good track record, there’s a good chance your financial provider might go easy on you. Financial institutions will also normally contact you to find out why you missed the payment.

You can tell them about your situation and if they’re satisfied with your reply, they might defer the payment, provided they also know you’ll start repaying the loan amount soon enough. Some financial institutions might also extend your loan tenure and reduce your EMIs to make them more manageable. You can also approach the lender in order to reconstruct the loan repayment strategy and reduce the tenure or EMI amount.

#3 Seek Financial Advice

You can seek the advice of a financial counselor when you find yourself in a legal soup. They will analyse your situation, counsel you, and give you viable options that you can follow. These counsellors will also help you draw up a budget that will help you make ends meet. They will also advise you on how to approach your lender and get the best deal even when you’re undergoing a financial crisis.

#4 Create a Budget

If you wish to skip consulting an advisor, move on to remapping your budget. Look at your finances and draw up a realistic budget that you can strictly follow. It’s advisable to make this habit even when your finances are safe, as you will learn to gain control over your money.

Start by reviewing your finances and calculating all your incomes and expenditures. You can then identify areas where you could curb your spending to free up some funds and use them towards making EMI payments. If you’re close to having your home seized, it’s best to stay away from luxuries until your finances are in order.

Also, see if your insurance policy will cover the loss of a job. This helps because some insurance providers will cover your EMIs for three months from the date of you losing your job. However, these policies will only cover you if you had to leave your job due to health issues or a layoff, and not in the case of termination due to bad performance.

What are my Other Options?

The best thing to do is to negotiate with your lender. Your bank might be willing to listen and give you a grace period, provided your former finances reflect well on you. Let us review the other options you may have.

• Loan Refinancing

If the interest rates have gone up and you can’t afford the EMIs, you can ask your lender to restructure or refinance your Home Loan. They can increase your loan tenure, which will lower your EMI significantly. Though in the long run, it will result in paying more, you’ll at least be able to save your property from foreclosure.

• Liquidating your Investments

This option should be your last resort and you should only use it if nothing else works. You can liquidate your existing funds, such as your mutual funds or deposits to repay the loan. You can also use this to make a part payment of the loan to reduce your EMIs in the future.

These are the options you have in case you’re unable to pay your EMIs. To avoid such a situation, make sure you have emergency funds that will easily cover EMI payments for at least 6-7 months. Also, ensure you have an individual health insurance and a critical illness policy, which will help you pay EMIs in case you lose your job.