India witnessed quite an economic downturn in 2020, with many people losing their source of income. This led to a serious concern with businesses collapsing and organisations cutting out employees to reduce the burden on their operational expenses.
As a result, individuals who had availed home loan in India last year faced several financial hurdles in paying off their debts. Individuals trying to avoid severe consequences like confiscation of property can consider the following points to settle their EMIs on time.
How to repay debts during financial distress
- 3-month moratorium
Besides reducing the repo rate to 4%, the RBI announced a major relief to home loan borrowers by allowing EMI payments under a three-month relaxation period. This means borrowers can repay their outstanding debt post this period.
It is to be remembered here that the interests charged on the outstanding amount per month will remain the same. Thus, the repayment post-three-month moratorium period will become expensive compared to your current payment schedule.
Individuals can also opt for a loan balance transfer. Look for lenders who offer affordable housing loan interest rate in India. However, one must consider the foreclosure and other charges before switching. It is best to opt for HFCs that do not levy any foreclosure charges.
Some reputed HFCs also extend pre-approved offers to facilitate a smooth application process. These offers are available on financial products like home loans, loans against property etc. Individuals can check their pre-approved offers by providing information like name and contact details.
- Opt for severance pay
As per terms and conditions, various organisations pay severance while laying off their employees. This amount is generally equal to the salary of the notice period. Individuals can use this amount to clear off their debts once the three-month moratorium period is over.
- Liquidate investments
Borrowers can rely on their fixed deposit and recurring deposits to make timely repayments of home loan in India during tough times. Nonetheless, those who fail to make provisions for home loan EMIs from their emergency funds can redeem their existing fixed-income investments, if any.
- Extract from provident fund
On 31st May 2021, the Employees’ Provident Fund Organisation declared a facility allowing withdrawal from PF accounts. This enables EPF subscribers to make a non-refundable withdrawal from their respective accounts, including the basic salary and DA for three months or up to 75% of the balance, whichever is less. Also, this amount will be remitted within three days of application.
- Seek help from friends and family
This option has a set of advantages. Unlike home loan in India, no interest rates are involved, no documents required, and one will not accrue penalty for late repayments. However, try to maintain the repayment deadline to avoid risking personal relationships.
- Loan against an insurance policy
Insurance policies can also show up as a reliable aid during critical situations. Besides being affordable, the insurance company will disburse the loan quickly as it already has your required details. Moreover, the interest rate of this particular product is also comparatively low.
- Talk to your lender
Lenders consider genuine reasons like loss of employment, a serious medical condition and other short-term difficulties and relax repayments. So, discuss the matter with your lender and try to convince them to allow the following relaxations –
- Grace period
Borrowers can seek a brief moratorium on repayments to assure resuming the same after recovering from the crisis.
- Restructuring loan
You can request your lender to increase the loan tenor and reduce the EMI amount. However, lenders will consider your request after only determining your age and home loan eligibility.
Remember, lenders will only agree to these after a thorough evaluation of your credit history.
The Centre for Monitoring Indian Economic survey states that in April 2021, India has witnessed a dramatic spike in the unemployment rate by 8%. Unfortunately, individuals who lose their jobs can look up to these tips to avoid defaults against their existing home loan in India and improve their credit history.