Non-payment of loan EMIs during lockdown

As the Coronavirus crisis assumes massive proportions, those servicing long tenure loans like home loans have additional reasons to worry, apart from staying safe during this crisis. How would one pay home loan EMIs, if they were to lose their job?

Providing a major reprieve to the common man, the Reserve Bank of India (RBI) Friday allowed a deferment of all loan repayments. The move allows borrowers to not pay any equated monthly installments or EMIs for any loans until 30 June. This will bring relief to all borrowers, including those who have home loans, auto loans, education loans, agricultural term loans, retail and crop loans to their names. It will also be applicable on credit card dues. The reprieve will be available for loans taken from any financial institution for all loans outstanding as of 1 March 2020.
 

What can you do if you are unable to pay your loan EMIs?

Banks are reaching out to customers to know if they want to avail of the loan repayment moratorium announced by the Reserve Bank of India (RBI) in an attempt to tackle covid-induced distress. Before we go any further, readers should know that this is only a grace period, and not a waiver of the loan.

If you do not pay the next two equated monthly instalments (EMIs) of your loan, you will not be blacklisted. However, the bank will charge interest for the unpaid amount. Missing two instalments could extend your loan by 6-10 months or increase EMI amount by about 1.5%.

Though the specifics vary across banks, borrowers have been given these three options by lenders-

• Option I: The borrower can make a one-time payment in June of the interest that accrues in April and May.

• Option II: The interest is added to the outstanding loan which will increase the EMI for the remaining months.

• Option III: The EMI is kept unchanged but the loan tenure is extended. The number of additional EMIs will depend on the age of the loan.

However, you can use the following options if you are unable to pay your EMIs even after the extension period:

1. Take advantage of the moratorium period: Announcing major relief to home loan borrowers in the aftermath of the Covid-19, the RBI on March 27, 2020, deferred EMI payments under a three-month moratorium period apart from bringing down the repo rate to an all-time low of 4%. In May, the RBI extended by the loan moratorium by another three months, till August 31, 2020. The RBI has advised banks not to categorise late payment of long–term loans as non-performing for the period between March and August 2020.
   
   However, be mindful of the many catches in this opportunity.First of all, it’s not an EMI holiday -you will have to pay the money later, with an interest. You have just got yourself two months’ relaxation from the RBI, without the late payment being categorised as a ‘default’ in your credit history. Additionally, whether the benefit be extended to you would be your lender’s call and the interest to be charged for the delayed EMI payments would also be the bank’s discretion.

2. Use your savings: You could also depend on your FD and RD to make the EMI payment for the simple reason that the interest you currently get on these (SBI FD interest is 5-6%) would be much less than the interest you would pay on home loans (SBI home loan interest rate is 8%), more so in case of a default.

3. Use your provident fund money: Through a notification in the wake of a 21-day lockdown, the labour ministry on March 29, 2020, allowed the 60 million subscribers of the Employees’ Provident Fund Organization (EPFO) to withdraw a portion of their retirement savings. Subscribers can withdraw 75% of their savings or up to the three months’ basic salary and dearness allowance (DA) from their PF account, whichever is lower. This amount could help you to pay home loan EMIs for some months till you find alternate sources. The best part of the plan is that your request of withdrawal of the PF money will be addressed within three days.

4. Sell gold, liquidate debt instruments: Investment in various debt instruments should be liquidated at this juncture to pay the home loan even in a scenario when you have to take a haircut.  You could also pledge gold and jewellery to arrange funds for home loan EMI payment. Amid gold prices touching new lows each day in the aftermath of the pandemic, you might not get what you expected from the yellow  metal—gold prices fell to Rs 42,693 per gram on April 1, 2020.

5. Look for family support: Borrowing from family members and friends who are in a position to lend you money for the time being could be another option.
    

How can a lawyer help you?

The situation currently being dealt with by the borrowers is quite unprecedented and comes with a lot of complexities. The inability to pay the loan EMIs has been a result of loss of jobs or business as a result of the economic distress caused due to the COVID-19 pandemic. This is why, it is necessary to have a banking/finance lawyer by your side if you are caught up in a legal issue related to default in payment of EMIs during lockdown. Owing to his/her years of experience a banking/finance lawyer is an expert in matters such as these and can help you find the best way out of such situations.