Did your EMI bounce via cheque or ECS/ NACH mandate? Know the consequences

The Reserve Bank of India (RBI) has some stated guidelines even in respect of EMI bounces and how it has to be tackled. This is more so to maintain fair practices, ensure transparency in charges, penalties, etc. In the interest of the borrowers, the apex banker has strictly mandated a 30-day notice period to borrowers before notifying the credit bureaus of the default.

Also, there are guidelines on the way in which the lending institution shall charge penalties and other charges.

1. Bank charges: At the bank’s discretion and RBI guidelines, the penalty charges on EMI bounce are between ₹300 and ₹1,200 per such instance, and GST.
2. Penalty interest: This is charged until you begin to repay and align your EMIs.
3. Cibil score impact: Cibil score impact is seen after the bureau is notified of the default, and the repetitive default may mean a huge decline in credit score to up to 100 points reduction.

In a case when the borrower fails to repay the EMI or maintain continuity for 90 straight days, the bank may resort to legal notices, typically in respect of cheque bounces.

Also, back-to-back cheque or ECS/ NACH bounces will also result in legal action, as it is deemed a financial offence. Consequently, a borrower may face legal repercussions.

How to avoid such EMI bounce issues?

To avoid any such lapses, one needs to maintain the EMI sum well in advance before the date set for auto-debit. Also, in case of any grave situation, one may coordinate with their banker for a temporary and partial relief.

Also, in case you have faced the issue of EMI bounce, then at best you can repay the outstanding EMI promptly, together with the levied charges, to minimise the impact.

Expert take

Ravi Singh, MD & Founder, Airmoney Services said, "EMI bounces or delayed payments can impact the CIBIL score immediately. Repeated defaults create a negative repayment history and may affect future loan approvals."