Defaulted on a loan? Here's how you can deal with the burden of repayment

Sandeep Sethi, a financial analyst, was rather happy that he could buy a house at the age of 25. However, three years later, things started going horribly wrong when his parents retired. Suddenly, the Rs 20,000 equated monthly instalment (EMI) started hurting because he had to provide for his parents as well.

“Since I had to look after the overall household expenses since last year, my planning started going haywire,” admits Sethi. He took several steps to overcome this situation and somehow managed to stave off default for an extended period. However, everyone is not able to handle the financial crunch. In such circumstances, there are some things you can do.

Insure your loan

If you are taking a home loan at a young age, insuring it makes sense because it is unlikely that you will have a significant corpus to fall back on. There various loan insurance plans are available in the market that can cover your EMIs for a short period. In case you lose your job, the insurance plan can work as a short-term measure, similar to that of an emergency fund. “Insurance can be taken to cover EMIs for situations that arise due to job/income loss, but for very short periods,” says Santosh Joseph, founder and managing partner, Germinate Wealth Solutions.

Seek easier repayment terms

Instead of avoiding your lender, it is better to meet and explain the situation. They can help you find ways to reduce your EMI burden by providing options. “No lender would want the borrower to become a defaulter and in the process, lose their money. If the cause of default is genuine, the lender will come out with a suitable solution,” says Rachit Chawla, founder & chief executive officer, Finway. Some of the solutions include a reworking of EMI terms and longer loan tenure to reduce EMIs.

“Lastly, you can also refinance the loan (asset), depending on the residual tenure of the loan, the value of the asset, and, of course, the EMI repayment track record you can offer a different product like mortgage or overdraft,” says Joseph.

Ask for grace period

If you are not able to pay EMIs for any genuine reason, such as loss of employment or medical emergency, try to persuade your lender for a grace period. “It’s essential to explain the situation under which one is unable to pay, and what can be managed under the new circumstances. “The lender may offer a few possible options like moratorium (EMI holiday), wait time or grace period for a short period till your cash flows or situation normalises,” says Joseph.

Consider selling financial assets

If you have exhausted your savings, raise some cash by disposing of your financial assets such as fixed deposits, Public Provident Fund (if matured), post office schemes, etc. This money can provide some relief. But this may not be a long-term situation.



Name: Sandeep Sethi | Age: 29 | Profession: Financial analyst at an MNC

‘Lender agreed to renegotiate the home loan’

When did you purchase the property?

I purchased a 2BHK flat in Noida four years ago. I took a loan of Rs 20 lakh at an interest rate of 10.5 per cent for 20 years, with an EMI of around Rs 20,000.

When it became evident that servicing the loan would be a problem, what did you do?  

Initially, I took the help of my financial advisor after defaulting on two consecutive EMIs. He helped me in restructuring my overall budget and asked me to talk to the lender and restructure the loan.

How did the lender react?

The lender agreed to renegotiate the home loan. It gave me a loan at 10 per cent — a better rate. Even the tenure was extended to 30 years. On the outstanding balance of around Rs 17 lakh, my EMIs became Rs 15,000 (approximately). I had also asked for a moratorium of six months. However, it did not agree, but waived the prepayment charges.

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