Unexpected expenses may occur anytime, and you may be forced to borrow money to deal with a sudden unforeseen emergency. Loans are generally the most appropriate means to meet your financial needs. A home loan is another type of loan that you may have to opt for to own a home of your choice. Loans, whether personal or home, are offered against the payment of the principal amount and interest in equated monthly installments (EMI).

There are times when you default on an EMI owing to any medical condition or any other external factors. Your inability to pay your dues on time will lead to losing 50 to 70 points on your credit score, which can affect you when going for a new loan in future. When future is uncertain, it is essential to know how to avoid EMI defaults in case of any financial crisis. A bank or lender has different ways to recover the money given to you. If it is a home loan, it is a secured one for the bank owns your property until the time you have paid the loan amount.

However, it is always advisable to pay your EMIs on time and avoid any EMI default. Here are some tips to avoid EMI defaults.

1. Use Your Contingency Fund

You do not know when a disaster strikes, and have all your carefully laid plans going awry. To meet the unexpected emergency, you should have a contingency plan. Why not set aside at least 3 months EMI amount and create a contingency fund to avoid EMI defaulting. You may also keep aside a certain amount of money that can take care of your monthly expenses, including the EMI payments.

The amount you save should ideally be 3 or 6 times of your monthly income. Nevertheless, there is no limit, you can even go for a higher amount to create an emergency fund. This can be put in a fixed deposit or in a savings account.

2. Raise Money through a Loan against Investment

If your contingency fund is exhausted, and you need to look for other ways to meet your expenses, as well as repaying your loans, then, it is advisable to take loan against your investments or assets like gold, insurance policy or fixed deposits. These loans can be used to repay your home loan EMIs, for they come for a lower interest and can be paid back later. 

3. Use Your EPF Advance Withdrawals

If you do not have any other option to meet financial contingencies, then you can think of advance withdrawals from your employee provident fund account. The EPF advance amount withdrawals are allowed for various purposes such as education, purchase of property, marriage, home loan repayment, and so on. As for the home loan repayment, you should have completed a minimum of 10 years of employment to withdraw a maximum amount from your EPF account, which is 36 times of your salary or wages.

4. Find a Solution by Contacting Your Bank

Once you have exhausted all your options or you do not know how to prevent being an EMI default, you can discuss the situation with your bank or lender. Where your case is genuine, you can convince the bank to give you some options. A bank may offer you a grace period on evaluating your credit history. It is a moratorium for a short period, where you are allowed time to recover from your financial difficulty.

The above tips help you avoid any EMI default and pay off your personal loan, without affecting your CIBIL score.