A business loan is a perfect option for emergencies when your organization is in dire need of finances. With simple application processes and quick disbursals, there are plenty of lenders from where you can get your loan processed almost instantly. But sometimes, paying back the loan can become a challenge due to unexpected circumstances. As a result, you miss EMI payments. So, how does this affect you? Let’s find out.
1. Affects credit score and credit report
One of the first things that a late EMI does is affects your CIBIL score. Depending on how delayed your payment is, you are marked as a minor defaulter (payment made within 90 days) or a major defaulter (not made payments in over 90 days). Accordingly, your credit score takes a hit. It’s essential to maintain a good credit score, especially if you’re looking for new loans with better business loan interest rates in the future.
A late EMI payment can attract additional charges as the lender could impose penalties on missing timely payments. Typically, lenders have a grace period after your due date, for which you face no charges. However, if you cross the grace period, they will charge you a penalty which varies from lender to lender, usually, it’s around 1-2% of your EMI.
3. Lowers future borrowing capacity
Whether you already have a loan or not, when you apply for a new one, lenders mandatorily examine your credit score and report carefully to ascertain your financial stability. A low score shows you’re not paying EMIs on time, whatever the reason.
Now, if you’re a defaulter, it will show up in this examination. Sometimes, with a very low score, you will not meet the eligibility criteria. Sometimes, even with a subpar score, lenders may hesitate to give you money. Even if they manage to make an exception, the amount you receive may be lower than what you need and at higher business loan interest rates.
4. Potential legal implications
In extreme cases, there are chances you can go to jail or face a civil suit. While they’re very rare, especially for a secured business loan. However, his only takes place after multiple unsuccessful attempts of the lender trying to get their money. Most often matters are sorted out much earlier, and this is a last resort of sorts.
The above consequences throw light on the importance of a business loan EMI calculator and why you should use one to determine if the amount you seek is within your means. Ensure when you take a business loan you should be able to handle the repayment. A good tip is to make sure EMI payments are less than 45% of your monthly earnings, so regular payment is possible and you are able to pay them comfortably.