Auto loans have made our lives easier by making us worry less during a large purchase. Although, getting auto loans approved have become more and more simple with time, paying the loans back along with the interest can sometimes prove to be difficult. Here are a few things you need to know for the times you think missing an EMI payment is okay.
Defining Payment Defaults
Missing EMI payments is categorized into major and minor defaults. Minor default like missing one EMI payment has a minor consequence, wherein, you are mostly asked to pay a fine. Major defaults, however, incur far bigger consequences. Missing your EMI payment for 90 days or more leads to your loan account being marked as a Non-Performing Asset for the lenders.
Non-Performing Assets (NPA) are loans or advances that are in default i.e., the loan agreement is broken due to prolonged delays in payment by the debtor. The NPA(s) are a burden to both the lender and debtor as it could disrupt cash flow and decrease earnings for the former, and leads to poor credit records and CIBIL scores for the latter.
The CIBIL Score
The Credit Information Bureau (India) Limited (CIBIL) is an organization that collects and maintains credit records for every individual and commercial entity in the country. CIBIL has records of your loans and credit card payment history. The CIBIL score is a parameter that determines a person’s ability to repay a loan. The higher your CIBIL score, the better your chances of getting loans approved.
The CIBIL score range:
• Excellent – 760 and above
• Good – 700 and above
• Fair – 640 and above
• Poor – 550 and below
Ideally, a CIBIL score in the range of 650 to 850 can help in getting instant loans from any financial institutions across the country. Below 550 can hamper your chances of getting your loans approved. Delayed EMI payments can lead to a 50 to 70 points drop in your CIBIL score. This is reflected directly on your credit report making you less eligible for loans, in the near future.
Recovery Agent Intimidation
Missing your EMI payments pushes the lender, mostly banks, to issue a 60-day notice after your loan is marked as an NPA. Further failure in the payments drives the lenders to send recovery agents, which is not an ideal situation for any individual.
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