How to pay your EMIs in difficult times

In these uncertain times, when the world is grappling with the pandemic, people are also falling into debt trap, unable to pay their EMIs.

Here are some options to repay EMIs during difficult times:

  • Create and Maintain Emergency Fund

The future is always uncertain but it can be at minimal risk with an emergency fund. Creating a savings account or a fixed deposit and accumulating funds in it regularly can come in handy at times of crisis. It makes sure one doesn’t fall into a debt trap or lose creditworthiness. Ideally, this amount should be at least six times the current monthly income. The emergency fund can help pay the EMIs and ensures there is no default.

  • Insurance for the loan

Loan Insurance, also known as Loan Protection Insurance, is a service designed specifically to cover the monthly loan payouts in case of temporary/permanent disability, loss of job, or any such eventuality. It protects the borrower from defaulting on loans. A loan protection insurance plan is a short-term measure, but beyond it, you will need concrete ways to repay your debt.

  • Dispose of assets to raise funds

Assets such as gold, car, electronics, or furniture that are not necessarily needed can be sold to raise funds. Long-term investments, like Public Provident Fund, which focuses on inducing small savings to accrue returns on the same, can be used to save your ship from sinking into the debt trap.

  • Communication is the key to any relationship

Under genuine circumstances of loss of livelihood or medical condition, along with a good track record of credit, can help convince the lender to aid with late repayment of EMI. After evaluation of the credit history and the seriousness of the circumstance, the lender may provide one of the following options:-

  1. Grace period: A grace period is a period after the due date during which payment may be made without resulting in loss of creditworthiness. During this time, no interest accrues to the loan balance as long as it is paid within the time further provided.
  2. Restructuring the loan: By restructuring the loan, the tenure period and the EMI amount is modified to fit the situation of the customer to repay the amount feasibly.
  3. Reduction of interest rate: A lower interest rate may be offered with certain terms and conditions. However, this reduction must be permissible within the rate grid and a rate below that is neither permissible nor customary.

It is always inadvisable to get tangled in the legal path whilst repaying the loan. Thus it is important to maintain contact with the lender and repay the dues in time.

One must note the following points:

  • In case of home loan, if the lender is ready to auction the property, the amount can still be paid before the auction or an appeal can be made in the Debt Recovery Tribunal to stop the auction.
  • 90 days is the limit after which the loan amount becomes a Non-Performing Asset (NPA) and the lender can initiate recovery process.
  • Last but not least- plan your finances. Finances should be planned, budgeted, and regularly managed to maintain personal funds carefully.