BM Finance Fundas: Missed the EMI of your loan by 1 day? It can cost you more than you think

By Naveen Kumar

People sometimes forget to maintain the required balance in their bank account on the day an EMI is to be deducted. They realise it only after getting a message that the EMI could not be deducted because of low balance. They will then have to run around to make the payment and may even have to pay a penalty to the bank. Yet, they would have damaged their credit history, which is created after years of disciplined repayment.

Even a minor drop is bad

Any default of EMI means you have to pay the penal charges to the bank. “Late or missed payments can lead to fees, penalties from the lender, and a negative impact on your credit score,” says Adhil Shetty, CEO of Bankbazaar.com. Moreover, if your credit score is around a critical level, your next loan will cost you more as you may need to pay a higher interest rate.

A bigger delay can have lasting damage on credit score
The adverse impact of the most recent default is substantial. “While each credit information company has its own proprietary algorithm to calculate an individual’s credit score, the most important elements of the score composition are centredaround the loan payment behaviour of the individual. Missing EMI or credit card payments by one day — and credit institutions report this — may lower the individual’s CIBIL score,” says Bhushan Padkil, SVP & Head of Direct to Consumer Business, TransUnion CIBIL.

The more recent the default, the bigger the impact it will have on your credit score. “The amount, frequency and the recency of default will have a bearing on the score,” says Ramkumar Gunasekaran, Director and Head of Sales, CRIF High Mark.

If you do not do damage control quickly, the delay can have a more significant effect. “An individual’s CIBIL score is calculated based on the last 36 months of credit history, as reported by credit institutions. Irrespective of the type of loan availed, any missed EMI or credit card payment can impact your CIBIL score,” says Padkil.

CIBIL score predictor on paisabazaar.com states that if one EMI payment is delayed by 30 days at this stage by Rajeev, the CIBIL Transunion Score will fall further by 65 points to 707. The total fall in credit score within 30 days could be 92 points.

Can borrower pay the missed EMI the same day?

“When you miss an EMI payment, the bank usually sends an alert via email and SMS. Bank representatives may also call to remind you of the missed payment and provide a special link or payment option to help you quickly settle the overdue EMI, minimising any potential impact on your credit score,” explains Shetty. While preparing to make the payment for a missed EMI, you must ensure that you clear all the dues.

How long does it take to recover from one-day default?

The time it takes for the credit score to recover will depend on the extent of damage to the score. The higher the damage, the longer it will take to bounce back.

— Naveen Kumar,