5 EMI defaults; what happens now?

WHEN TAKING a loan from bank, you commit yourself to make monthly payments. If you default, not only do you pay late payment charges but also run the risk of hurting your financial health in the long run. One such reader has defaulted his EMIs not once but five times. Our expert guides him on what to do.

Q. I have taken a loan of Rs 4 lakh from a public sector bank (PSB). I have not been able to pay the equated monthly installments (EMI) for five continuous months. My EMI is Rs 5000. Now, if I want to make the payment of all the five months together what will be the overdue charges?

A. There are a number of charges that can be levied:

Penalty charge

A PSB normally charges a penal rate of 1 to 2 per cent of your EMI if it remains unpaid for 30 days after the due date. So, you will have to bear this charge on the months when you defaulted your payment.

Cheque bounce charge

In case you have given post dated cheques (PDC) for your EMI payments and your account has had insufficient funds then you would have to pay additional bounced cheque charges too. This charge can range anywhere between Rs 250 to 400. In case of electronic clearing system, the penalty will be between Rs 100-150.

Now, if you are planning to make the payment of all the defaulted five installments together, you will be paying the charges as explained in the table below.

Miscellaneous charges

Apart from the above charges, there might be other miscellaneous charges that may marginally increase the amount. Also, in case of consecutive defaults banks have the right to increase the interest rate. Since you signed the agreement while taking the loan, you will not have much say in this. If such a situation arises, it may alter the complete nature of your debt situation.

Here is a description of the penalty charges you are likely to incur on EMI defaults.

In the table, a 2 per cent penalty charge will be imposed on the first month