Two-wheeler loans have made it possible for Indians to buy the bike of their dreams. Owning a bike is empowering because you can choose when to travel, and employment opportunities open up for bike owners in delivery services, sales, etc. However, bike loan borrowers who falter on timely repayment find themselves surprised by late payment charges and other penalties.
Lenders give two-wheeler loans based on the applicant’s strength in credit history, the potential for repayment/default, etc. Delaying repayment hurts a borrower’s credit history and future loan eligibility, besides racking up large late payment fees.
What Happens When You Delay Repayment?
If your cheque bounces or your account balance is insufficient, you have to pay EMI bounce charges. The total penalty adds up to be the sum of late payment charges, bank charges, overdue interest, collection charges, etc.
When you miss too many EMIs and don’t address the lender’s notices, they will tag you as a defaulter. Being labelled a defaulter has the following consequences:
1. Credit Score Goes Down
Lenders report non-payment of EMIs to the credit bureaus, so this lowers your credit score. It has a series of negative consequences for future loan availability.
2. Your Guarantor Gets Impacted Too
If you ignore the lenders' attempts to contact you for months, then they may approach your guarantor to repay the loan. The guarantor will also have to pay the EMI default charges.
3. Possible Seizing of Asset
If you and the guarantor can’t be reached, then the loan agreement gives the lender the right to seize your asset and auction it. To get your bike back, you will end up paying even more charges over the late payment fees, bank charge, overdue interest, etc. for keeping the bike in the auction yard, towing, etc.
4. Future Loan Denial
Lenders may pass on a loan to a collection agency if it gets classed as a non-performing asset (when the borrower has defaulted for over 90 days without notice). These collection agencies can be very persistent about their methods to get repayment of the outstanding loan, EMI default charges, bank charges, etc.
5. Dealing with Collection Agents
Lenders may pass on a loan to a collection agency if it gets classed as a non-performing asset (when the borrower has defaulted for over 90 days without notice). These collection agencies can be very persistent about their methods to get repayment of the outstanding loan, EMI default charges, bank charges, etc.
Why do people fail to repay EMIs on time?
There can be many reasons, including:
- Low account balance
- Salary delay
- Job loss
- Lack of liquid funds due to some emergency (medical, family, etc.)
- Forgetfulness
If you fail to make the EMI payment before the due date, you first get a notice and have to give late payment charges. Upon continued failure to pay or acknowledge the notice, you will be considered to have defaulted on repaying the loan.
Nowadays, lenders like Shriram Finance can help you set up auto-debit facilities to rid you of the hassle of keeping track of due dates. Therefore, you have to ensure that the account has a sufficient balance around to avoid late payment charges. Alternatively, if you are repaying by cheque, then the corresponding bank account must have adequate balance. If not then you will be slapped with EMI bounce charges and bank charges.
Late Payment Charges Repayment Delay of Bike Loan
Various lenders have different penalty rates to calculate the EMI default charges for delay in repayment of a bike loan. It can vary from 3-40% and may be calculated on just the unpaid instalment, or even the entire unpaid loan balance. Lower late payment fees rates are generally on a per month basis- every month of non-payment, whereas higher rates are applied at one go, such as at the end of the repayment year.
Shriram Finance clearly states the EMI Bounce Charges in Schedule 2 of their loan-cum-hypothecation agreement, so you should go through it carefully. Firstly, they charge 36% per annum on the instalment amount in arrears from time to time as late payment charges.
Therefore, if your total defaulted EMI amount in arrears over the entire year was INR 50,000, then the overdue interest would be INR 18,000. It would be added to the final late payment charges amount to be paid.
In addition to this, you have to pay INR 500 for each instance of a cheque bounce. Therefore, if you racked up this INR 50,000 arrear by defaulting four times, then you will have four cheque bounces. So now, you have to add INR 2000 to the earlier EMI default charges of INR 18,000.
For automatic clearance failure, there may be a charge for NACH failure (National Automated Clearing House) added to the late payment charges.
You will also owe them postal charges for each dispatch, such as notices at INR 50 by post/courier. If your case became severe enough for collection agents to visit, you would face collection charges of INR 250 per visit to your place or your guarantor’s. There is also a GST of 18% applied on services including late payment charges.
The sum of all these and any other charges will be the total penalty or EMI Default Charges.
How To Avoid Delay In Repayment?
- To avoid getting late payment charges, always pay on time and keep your bank account topped up to prevent cheque bounces.
- While many people avail of multiple loans, it’s advisable to have only one loan to repay at a time. If you have to pay EMI for 2-3 loans together, it will naturally be difficult. You may incur late payment charges on one or more.
- If your income increases, you should consider increasing the EMI. It reduces your overall liability as you will have fewer EMIs to pay. But if you miss the EMI, late payment fees will be higher.
- Always priorities repaying your debt over other financial decisions to avoid EMI default charges.
During times of difficulty, lenders like Shriram may provide a moratorium on repayment if you contact them. Moratoriums help avoid EMI bounce charges.
Moratorium on Repayment
During unprecedented times when people lose jobs, lenders generally get directions from regulators to help avoid late payment fees. The resolution to help stressed borrowers is called a moratorium- when banks place a 'pause' in repayment obligations as per agreement.
Therefore, in such situations, lenders of two-wheeler and home loans specify the period during which you don't have to pay EMI. However, note that you have to get in touch with Shriram Finance to change the repayment schedule. Failing to pay without informing the lender will still result in EMI Default status and you will be charged with EMI bounce charges.
Also, this is not loan forgiveness. The interest will continue to accrue and be payable by the customer even for the extended loan tenure. This fact means that you will have to pay interest for extra months. If you miss any of the extra months, you will again have to pay EMI default charges.
Thus, avail of the moratorium only under dire circumstances. If you face some hardship and cannot repay the EMI, get in touch with Shriram Finance. They will help you by negotiating your payment schedule and reduce high EMI bounce charges.
Conclusion
With more than 900 branches across India and a simple, straightforward online application procedure, getting your bike financed by Shriram Finance is really easy. The interest rates are very affordable, starting from 11.5% p.a. The interest rate is set according to the applicant's desired principle and factors in the ability to repay, thus making it very easy to get full financing at a wide range of eligibility conditions.
The best way to reduce your late payment charges is to not default on multiple payments. If you face problems with paying on time, Shriram Finance will help you with your repayment problems so that your credit score remains good.
