Introduction
When you take a personal loan, the most important part is paying your EMIs on time. If your bank account does not have enough balance or the payment fails, the lender will charge EMI bounce charges.
These charges may look small at first, but they add extra cost to your loan. More than that, repeated EMI bounces can lower your credit score and make it hard to get loans in the future.
Many borrowers face stress because of these charges. This is why you must know how EMI bounce charges work and how to avoid them. This post gives a detailed understanding of these charges and other details.
What are Personal Loan EMI Bounce Charges?
Personal loan EMI bounce charges are penalties that lenders apply when your EMI payment fails. This usually happens if your bank account has insufficient funds, your payment mandate is not active, or there is a technical issue.
Major Default
A major default happens when an EMI has not been paid for more than 90 days. In this case, the lender marks the outstanding amount as a non-performing asset (NPA).
Minor Default
A minor default applies when an EMI payment is overdue for less than 90 days. While lenders may still charge EMI bounce charges, the consequences are not as severe if you quickly clear the dues.
Check out lendingplate’s Personal Loan Processing Fees
What are the Charges of EMI Bounce?
Missing an EMI payment does not just cause inconvenience; it also attracts different penalties from lenders and banks. Below are the charges:
1. Penalty for EMI Bounce
Every time an EMI is not processed, lenders apply a penalty. The fee varies by bank or NBFC and usually falls between ₹250 and ₹1,500. Some lenders may calculate it as a small percentage of the EMI instead of a fixed fee.
2. Extra Cost for Delayed Payment
A late fee is added if the EMI is cleared after the due date. This is normally around 2% to 3% of the pending amount per month until payment is made.
3. Bank Fees on Failed Auto-Debit
Banks also charge separately when the auto-debit or NACH mandate fails due to insufficient balance. These charges usually range from ₹200 to ₹500 per failed attempt, apart from the lender’s penalty.
4. Risk of Legal Action
Repeated EMI bounces may push lenders to take legal steps for recovery. They can seize or auction the pledged asset if the dues are not cleared in case of secured loans.
Consequences of EMI Bounce
Not paying an EMI on time can result in financial stress besides personal loan EMI bounce. Here are the main consequences you should know:
1. Penalty Charges - A single missed EMI comes with a penalty decided by the bank or NBFC. These charges add to your repayment amount while increasing your total loan burden.
2. Negative Impact on Credit Score -An EMI bounce is reported to credit bureaus. This lowers your credit score & makes it difficult to qualify for future loans or credit cards at good rates.
3. Higher Interests -Lenders may increase the interest rate on your loan or offer new credit at higher rates if defaults continue.
4. Legal Risks -Long-term failure to clear EMIs can result in legal recovery action. The lender may even claim the pledged asset to cover losses in secured loans.
Why Does EMI Bounce?
An EMI can bounce for several reasons. Knowing these reasons helps borrowers avoid EMI bounce charges. Here are the main causes:
1. Insufficient Funds -The most common reason is not keeping enough balance in your account on the EMI due date. The payment fails & is recorded as a missed EMI when the required amount is missing.
2. Incorrect Account or Cheque Details -A wrong date or mismatched signature (even incorrect bank account details) can result in an EMI bounce.
3. Technical Glitches -Sometimes payments fail due to bank system downtime or issues with the auto-debit setup.
Also Learn: How to Calculate Personal Loan EMI using Excel
How to avoid EMI Bounce?
Preventing an EMI bounce is easier when you plan your payments in advance and follow a few simple steps. Here are some effective ways to avoid penalty charges and protect your credit score:
1. Keep a Sufficient Balance in Your Account - Always keep enough money in your account before the EMI due date. You can also use an overdraft facility if your bank provides one.
2. Use the Auto Debit Facility -Setting up auto debit ensures your EMI is deducted automatically on the due date.
3. Keep Bank Details Updated -Inform your lender immediately if you change your bank account or update your address (or modify your signature).
4. Talk to Your Lender -Speak with your lender if you face genuine financial hardship – such as job loss or medical expenses. They may allow a due date extension or restructuring of your loan to make repayments manageable.
How to Avoid EMI Default?
Repeated EMI bounces can eventually result in loan default. Here are some tips to avoid:
1. A Smart Budget Plan -Reduce unnecessary expenses & use a personal loan EMI calculator to know exactly how much you need to save for repayments.
2. Consider Investments -Try to grow your money through safe investments. Returns from bonds or SIPs can help cover loan costs while offering a financial solution.
3. Repayments Should be Automated -Set up auto debit so your EMI is deducted as soon as your salary is credited.
4. Stay in Touch with Your Lender - Many lenders offer options like extending the personal loan tenure or restructuring EMIs to ease repayment.
5. Consider a Balance Transfer - Moving your outstanding amount to another lender can reduce your monthly burden when your current loan carries a high personal loan interest rate. Ensure it comes with lower rates; this makes repayment easier.
How to manage EMI’s better to avoid EMI Bounce?
Missing an EMI not only brings EMI bounce charges but can also damage your credit record and reduce trust with lenders.
1. Plan within Your Budget - List your income & expenses clearly. Mark your EMI as the first expense every month, then plan the rest of your spending around it. This way, you never experience EMI bounce charges.
2. Use Auto-Debit for Payments - Link your bank account for auto debit or standing instructions. This makes sure your EMI is paid on time without reminders or manual transfers.
3. Track Your Loan Commitments -Check if your EMIs together are manageable if you have more than one loan. Keep them within a safe limit of your monthly income so you don’t feel stretched.
4. Keep an Emergency Fund - Keep small savings to ensure you do not have problems paying EMIs for two to three months. This helps avoid EMI bounce charges in case of sudden expenses or if your income is delayed.
5. Check Your Credit Score Often -On-time EMI payments improve your CIBIL score. But a single missed payment can lower it while impacting your chances of getting new loans with good rates.
Long Term Effects of EMI Bounce on Borrower’s Credit Score
Your credit score is a reflection of how reliable you are in repaying debt. When EMIs bounce frequently, it signals financial stress and lowers your score. A poor score makes it harder to qualify for future loans or credit cards and may also lead to higher interest rates.
1. Negative Impact on Credit Score - A missed EMI is recorded in your credit history. If you default on several consecutive payments, you may experience EMI bounce charges. Plus, it stays on your report for years – thereby reducing your borrowing power.
2. Higher Costs Due to Penalties - A skipped EMI usually attracts late fees or penalties, often charged as a percentage of the unpaid amount. Over time, these charges increase the overall repayment burden and make the loan more expensive.
3. Possible Loss of Security - Personal loans are unsecured loans. But other loans may involve collateral such as property papers, fixed deposits, or a vehicle. Lenders can seize the pledged asset to recover dues in cases of repeated defaults.
4. Reduced Loan Opportunities - A healthy CIBIL score helps you access loans at better terms. But a good income may not guarantee loan approval if EMI bounces appear in your record. Lenders may either reject your application or approve it at a much higher interest rate.
How lendingplate Can Help You Manage EMIs Better?
Managing several EMIs at once can feel overwhelming, but lendingplate makes it easier by offering personal loan solutions.
1. Consolidating Debt -If you’re juggling multiple loans like credit cards, car loans, or personal loans, consolidating them into a single EMI at a more competitive interest rate is a good choice. Debt Consolidation Loan simplifies repayment and reduces your financial stress.
2. Avoiding Late Fees & Penalties - Short on funds? With a personal loan, you can ensure timely EMI payments and avoid the burden of late charges, bounce penalties, and unnecessary credit score damage.
3. Lowering Overall Loan Burden -The loans can also be used to prepay or close high-interest debts, effectively lowering your total repayment amount and freeing up monthly cash flow.
4. Support during Financial Uncertainty - Unexpected expenses can make EMI payments tough, resulting in EMI bounce charges. lendingplate offers instant personal loans so you don’t fall behind on obligations, helping you maintain financial stability.
Conclusion
Managing EMIs responsibly maintains financial stability. A single bounced EMI can result in penalties. You need to budget smartly & maintain a bank balance to ensure there are no EMI bounce charges. You should stay disciplined with your repayments & ensure eligibility for future loans.
Frequently Asked Questions (FAQs)
Q.1. What happens if one EMI bounces on a personal loan?
The lender may charge a penalty – EMI bounce charges – if an EMI bounces. They may send reminder notices or record the missed payment. A single bounce might not cause immediate legal trouble. However, it can impact your repayment schedule & increase overall loan costs.
Q.2. Why does an EMI bounce on a personal loan?
EMI bounce charges are usually given due to insufficient bank balance or an expired or invalid debit mandate. There might be technical issues during payment processing in some instances. Borrowers should regularly check their accounts & ensure proper authorisation of auto-debits to avoid missed payments.
Q.3. How much is the penalty for an EMI bounce?
Bounce charges typically range from ₹500 to ₹1,000 per missed EMI (depending on the lender). Some lenders may also impose additional late payment fees or interest. That may increase the overall financial burden if the EMI is not cleared promptly.
Q.4. Will a bounced EMI affect my CIBIL score?
A bounced EMI can negatively impact your CIBIL score. Payment delays are recorded in your credit history. Frequent EMI bounces can make it harder to get new loans or credit at favourable terms.
Q.5. How can I avoid getting charged for an EMI bounce?
Maintain sufficient balance in your account & set up reminders before due dates. Use reliable payment modes & regularly review your EMI commitments. These ensure smoother repayments while helping you avoid bounce penalties & charges.
Q.6. What legal steps can a bank take if I keep missing EMIs?
Banks may recall the loan or involve collection agencies if EMIs are missed repeatedly. They may initiate legal proceedings. Lenders can repossess assets in secured loans. Borrowers may face court notices & debt recovery actions in unsecured loans.
Q.7. How does a missed EMI affect my credit report?
A missed EMI is reported to credit bureaus while reflecting as a default in your credit report. This lowers your credit score. It makes your lender think that you are unreliable. This reduces your chances of getting loans or credit in the future.
Q.8. What happens financially if I miss my loan EMIs?
Missing EMIs adds costs like penalty charges & late fees. The loan could be classified as a Non-Performing Asset or NPA if defaults continue. This increases repayment pressure while damaging your financial credibility significantly.
Q.9. Will missing EMIs make it harder for me to get loans in the future?
Missed EMIs reduce your credit score. This can result in higher interest rates or outright loan rejections. A consistent repayment record is crucial for securing affordable future loans.
Q.10. Can the bank take legal action if I don’t pay my EMIs?
There are legal actions taken by banks if you do not pay your EMIs for a long time. Banks may issue legal notices or recall the loan (or repossess collateral in secured loans). The matter can be escalated to court in the worst cases. That results in formal debt recovery proceedings.
