Loan EMIs vs Monthly Rent: Which is better

Lost Your Job? Here’s How to Manage Your Home Loan EMIs

A recent study by the Centre for Monitoring Indian Economy (CMIE) revealed that 27 million youth in the age group of 20-30 years lost their jobs in April 2020 due to a nationwide lockdown. The same study further showed that the urban unemployment stood at 9.79% on July 29, while the rural unemployment rate stood at 6.56%. 

It comes as no surprise that many people lost their jobs due to the ongoing pandemic. People with home loan EMIs had more reasons to worry as apart from staying safe during the crisis; they had to arrange funds to pay their monthly instalments. In the absence of a salary, many such borrowers took advantage of the moratorium period announced by the RBI

But what happens when the moratorium ends? What is the way out in such times? Well, as mentioned in some of our previous posts, it is good to maintain a contingency fund with at least six to eight months of EMIs. But as it is not possible for everybody, here are some ways to stay afloat. 

Talk to your lender 

The first thing a borrower should do is to inform the bank about the job loss. If you have been diligent in paying your previous instalments, your lender will try to help you. You can talk about:

  • Deferment of payment for a few months
  • Prolonging your tenure, which will reduce your EMI burden

Borrow from family and friends

A no brainer, right? 

Borrow from family members or friends who are in a position to lend you money for the time being. This is the best way to arrange funds as you won’t have to pay interest on the amount. Also, you will not accrue any penalty if you aren’t able to repay within a specified time.

Make sure to give a realist timeline for repayment as you don’t want the risk of stressing your relationship.

Use your bank savings

Fixed deposits (FD) or recurring deposits (RD) are two prominent asset classes in a typical Indian investor’s portfolio. If you too have these, this would be the right time to use these savings. 

People these days also keep separate funds for travelling, their children’s education, or other such goals. If you have any of these, it can be used to pay EMIs for now. You can always replenish it later when things get back to normal. 

Use your severance package

If you have been asked to leave your job, it is quite likely that you would have received the severance package. Majority of the companies pay at least two to three months’ salary as severance. You can use the money from your severance package to pay your EMIs. 

Liquidate assets

If you have assets such as gold or silver, you can try liquidating those. With rising gold prices, you can also consider pledging jewellery to arrange funds. Alternatively, you could also take a loan against the gold. The interest rate on loan against gold starts at 7.25% and goes up to 18% annually. Considering this is a secured loan, banks would process the request much faster.

Get a loan against the insurance policy

If you have a life insurance policy, you can get a loan against that. The rate of interest on the loan against an insurance policy is much cheaper than getting a personal loan. Talk to your insurance company to find out more details on this. 

Withdraw from Provident Fund (PF)

The labour ministry on March 29, 2020, allowed the 60 million subscribers of the Employees’ Provident Fund Organization (EPFO) to withdraw a portion of their retirement savings. Subscribers can withdraw 75% of their savings or up to the three months’ basic salary and dearness allowance (DA) from their PF account, whichever is lower. 

If none of the above-mentioned things works for you, this is our last suggestion. This amount could help you to pay the home loan EMIs for some months till you find alternate sources.

How should you prepare yourself for such a situation in the future?

  • As the adage goes, prevention is better than cure. When the situation gets back to normal, start building a contingency fund. This fund will act as your saviour is such a crisis. 
  • These days, banks offer loans for everything – home loan, personal loan, car loan, and the list is endless. Just because your credit score allows you to get a loan easily, don’t go for it unless necessary. Spend on luxuries only when you can afford it or when you have enough savings. 
  • If you have home insurance, try to get a clause under which the insurance company will cover you in case of a job loss. While this will cost you some extra bucks, but it will be worth it. Also, talk to your insurance provider if they have a cover against job loss. This way, the insurance company can pay your EMIs on your behalf for a few months.  

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