Understanding the Impact of Missing EMI Payments for More than 90 Days

Missing an Equated Monthly Installment (EMI) payment for more than 90 days can have several significant consequences. This article aims to clarify the implications of such a situation, primarily focusing on the external and internal classifications of your loan and the steps taken by lenders and banks.

What Happens if One Misses an EMI for More than 90 Days?

Externally, the loan will be classified as Non-Performing Asset (NPA) for the lender. This classification typically occurs not on the 91st day but on the day after the end of the quarter. For instance, if the 90th day falls on the 7th of December, the NPA classification will occur on the 1st of January. Technically, you can still pay an installment and regularize the account until 31st December. However, on 1st January, the loan officially becomes classified as an NPA by the external regulatory bodies.

Internal Classification and Recovery Efforts

Internally, the bank may classify the loan at various stages:

Sub-Standard 1 Doubtful 1 Doubtful 2 Write-Off

Each stage has its own process and timeline. At the Sub-Standard 1 status, the bank will typically give you another 180 days to regularize the loan. After this, they will demand either closure of the loan by paying the full due, settling the loan, or paying 12-15 months of EMI plus pending interest. Ultimately, after 3-4 years, the loan may be written off, but the bank will proceed with recovery efforts.

Consequences and Financial Impact

Credit Score Impact: Your credit score will likely suffer as payment history is a crucial factor in credit scoring. A missed payment can remain on your credit report for several years. Late Fees: Lenders typically impose late fees for missed payments, which can increase your overall debt. These fees can range from a fixed amount to a percentage of the EMI. Default Status: After 90 days of non-payment, your loan may be classified as in default. This means the bank may start recovery efforts. Collection Efforts: The lender may initiate collection efforts including contacting you for payment or hiring a collection agency to chase the outstanding balance. Legal Action: In some cases, if the above measures fail, lenders may take legal action to recover the owed amount, potentially resulting in court proceedings. Asset Repossession: If the loan is secured, such as in a car loan or mortgage, the lender may repossess the asset to recover the outstanding debt. Negotiation Options: If you find yourself in a situation where you might miss an EMI, it is advisable to communicate with your lender as soon as possible. Negotiation options include forbearance or restructuring the loan, depending on the lender's policies. Long-term Financial Impact: The long-term effects on your finances can be significant, affecting your ability to secure future loans or credit. Delinquent payments can affect your financial health for years to come.

If you find yourself in a situation where missing an EMI is a possibility, it is essential to communicate with your lender as soon as possible. Early communication can often open up options for forbearance or restructuring the loan to prevent further financial repercussions.