Today, many high-value transactions are done via equated monthly instalments (EMI). This means instead of paying for the service or product upfront in full, you divide the price and pay the service provider or seller the amount over a few months + additional interest rate for this staggered payment schedule. As EMI payments start becoming more common in India, so will instances of EMI bounces.
Let’s talk about what happens when your EMI payment bounces and how you can avoid this from happening.
Why did my EMI payment bounce?
Your EMI payment can bounce for many reasons – some of them are in your control, while others are not. These include:
- Insufficient bank account balance
- Incorrect date on the cheque
- Signature mismatch on the cheque
- Technical glitches or system upgrades/maintenance
- Delay in setting up the ECS for your purchase
What are the consequences of EMI payment bounces?
If the bounce is a one-off event, it is called an exceptional bounce. However, if EMI bounces regularly occur in your bank account, this is called regular bouncing.
Any time your EMI payment bounces, you’re charged a bounce fee, and this transaction gets recorded to your bank account statement. The bounce penalty varies from lender to lender but usually ranges between Rs. 400 – Rs. 590.
If you’ve set up an ECS payment schedule with your lender and the EMI payments happen automatically, the system will make another attempt to withdraw the EMI due the next day. If the transaction is also unable to go through, your account is charged the bounce penalty again.
Exceptional bounces are common, so they don’t have a severe impact on your creditworthiness. Regular bounces, however, are a different story. These can impact your creditworthiness and ability to procure finance from a formal lender in the future.
If your EMI payment was for a loan and the automatic EMI pull fails, and you’re unable to pay the EMI through alternate means, it gets recorded on your credit report. Again, an exceptional bounce is ok, and lenders can overlook it. However, if they see regular EMI payments bounce on your credit report, lenders may think your business is in financial trouble. This may make it difficult to procure a loan at favourable loan terms.
How do I stop my EMI payments from bouncing?
- If your EMI is automatically taken from your account, these transactions are made first thing in the morning on the date the EMI is due. So, ensure you have the required amount in your bank account the day before so that the pull can successfully go through on the due date.
- Always maintain a minimum bank account balance higher than your combined EMI dues.
- If you’ve just gotten a loan and it’s your first time paying the EMI, but your ECS process is not complete, don’t worry. Lenders always ask for a few EMI payment cheques when they give you a loan as a backup. So, if the electronic system is not up and running for your account yet, they’ll simply cash in the EMI payment cheque you submitted.
- You can also set a recurring reminder on your phone calendar to ensure you’re reminded of the EMI payment a few days before it is due.
What happens if my business loan EMI payments bounce?
If you’re repaying a business loan and your EMI payment bounces once, then lenders will be accommodating and willing to let it slide because they know such things may happen or the bounce may be out of your control.
On the other hand, if your business loan EMI payments bounce repeatedly, this is a sign of concern for the lenders because it may indicate that your business is in a cash crunch. Every time your business loan EMI bounces or gets paid after the due date, it is recorded on your bank account statement, your loan account statement, and your credit report.
When you apply for a business loan, lenders will review your bank account statements for the previous year as well as the loan account statements for any live loans you’re currently repaying. So, they’ll find out about these bounces, and when they pull your bureau report, they can find out exactly how late each of your EMI payments was.
All this information helps the lender decide whether they want to lend to you and what loan terms and interest rate to offer you, given the level of risk involved for them. Multiple EMI bounces could mean lenders offer you a higher interest rate and smaller loan amount.
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