Every home loan borrower needs to pay the equated monthly instalments (EMIs) on time. Delay leads to penalties and can burden the borrower with more interest and late fees. This situation can be more challenging when you take a joint home loan. Though a joint home loan is typically taken with a family member, if the co-borrower stops paying the EMIs, it can impact both the borrowers.
There are two scenarios in this situation. The first one is where both of the borrowers are paying their respective shares. In this case, if one person stops paying the share, another person can take over. The second scenario is where only one person is paying the EMIs. In this case, the non-paying borrower can take over the entire EMIs or start paying his part so that the other person is not overburdened.
However, if one person stops paying his share and another either refuses or cannot pay the EMIs, it first leads to delay and eventually to the default of the loan. Here is what can happen when a co-borrower stops paying.
Delay penalty
When you miss an EMI, the bank will contact you and ask you to pay your EMI within 24 hours with delay charges. In the case of a joint home loan, the lender will inform both the borrowers about the delay and request for immediate repayment. It is advisable to pay immediately. The penalty charges are typically between 1% and 2% of the EMI.
Credit score
Your credit score is crucial for borrowing money from financial institutions. Even if one EMI gets delayed, the same can get reflected in your credit history. Both the borrowers, whether they are paying EMIs from their account or not, can be impacted. The credit scores of both borrowers can take a hit. If your credit score falls, borrowing money from banks or other financial institutions can be challenging.
Minor default
Any delay or miss in repaying your EMI within 90 days is treated as a minor default. In this case, the best thing to do is to pay your EMI on the next due date to avoid exceeding these 90 days. You can recover from the impact if you continue repaying on time. Your credit score can be restored if you maintain financial discipline.
Adhil Shetty, CEO, BankBazaar.com, says, “In a joint home loan, both borrowers are responsible for its repayment. A delay or default in payment by one borrower can impact the credit scores of both borrowers. If a financial issue is hampering your loan repayment, reach out to your lender and discuss a solution. Remember, if you delay EMI payments for over 90 days, the lender has the legal right to auction your property and recover their dues. To avoid this, keep track of the loan EMI payments. If any EMI is missed, immediately discuss it with your co-borrower and take steps to streamline outstanding repayments.”
Non-performing asset (NPA)
A borrower has 90 days before his loan can get classified as Non-performing Asset (NPA) for not repaying the loan EMIs. If you and your co-borrower still can’t find the solution, the best bet is to reach out to your lender and find a solution to avoid getting your loan classified as NPA. Otherwise, the lender has a legal right to auction your property and take other steps that can harm your financial and personal reputation. Request your lender to give you some time to devise a plan with your co-borrower on how to repay the loan.
Both borrowers either agree to pay the EMIs together or sell off the property to settle the outstanding loan, if they can’t.
Partial payment
If the loan EMIs are higher, you can partially prepay the loan to reduce the burden. It will help you lower the amount and interest on the loan. However, both borrowers must agree to a solution to avoid legal problems when they resume repaying the loan.
Relinquishment deed
This legal document transfers the property right of one co-owner into another owner’s name. If your co-owner is ready to release his legal rights in the property, you can transfer the share in your name through a registered relinquishment or gift deed. After that, you can either pay the EMI or sell the property if you cannot repay the loan to avoid legal actions from the lender. Don’t forget to take the NOC from the bank if one owner releases his share in another person’s name.
A joint home loan is the responsibility of both loan borrowers. You must discuss and resolve the dispute with your co-owner and avoid defaulting on the loan, as it can have serious financial consequences for borrowers.