Home Loan: How missing a single credit card bill payment can cost you nearly 11 lakh on home loan repayment in 2024
If you make timely credit card bill payments and maintains a healthy credit score, you have the chances of getting a home loan at quite a low interest rate than the rate offered to the person who miss payment deadlines and has a poor credit score.
Healthy financial habits like paying your credit card bills or repaying home loan on time are important for a good credit score. But many times when the amount of credit card payment is small then people take it lightly.
They think that if they miss payment even by a day or two, they will only have to pay an additional penalty of a few hundred rupees to make up for it.
But that careless attitude hurts their credit score, which can cost them dearly when they approach a lender for a home loan.
Depending on their credit score, a lender may offer a home loan at a much higher interest rate than the interest rate offered to a borrower with a better credit score and timely payment of credit card bills.
“Even missing a single credit card payment can cause significant damage to your credit score. This loss will vary from borrower to borrower depending on credit history. But we have seen instances of decline of over 100 points based on a single late payment,” says Pankaj Bansal, chief business officer, BankBazaar.com.
He further adds, “Late payment not only hurts in terms of score damage and penalty charges, which can be a few hundred rupees in most cases. They also suffer if you are looking for a larger loan. ,
How is credit score linked to home loan?
When you go to a lender for a home loan, he checks your credit history and CIBIL score (credit score).
CIBIL score ranges between 350 to 900.
A CIBIL score of 800 and above can help you get a home loan at a much lower rate.
Whereas the same lender may offer a home loan at a higher rate to a borrower with a CIBIL score between 650 and 800.
A credit score of 550 or less is considered poor and reduces your chances of getting a loan.
“Loan rates are linked to your credit score. Therefore, a low score can lead to long-term financial trouble due to higher interest rates,” says Bansal.
How can a bad credit score affect your home loan repayment amount?
Home loans are larger and have longer tenures.
If the loan tenure is 20 years, a change of just 1 percent in the interest rate can significantly increase your repayment amount.
For example, if you have taken a home loan of Rs 70 lakh at an interest rate of 9.5 per cent for 20 years, your monthly EMI will be Rs 65,249, the total interest you have to pay on the principal amount of Rs 70 lakh. It is Rs 85. ₹59,804, and the total repayment amount will be Rs 1,56,59,804.
But if the lender gives you a home loan of Rs 70 lakh at an interest rate of 8.5 per cent for 20 years, your EMI will reduce to Rs 60,748, the interest money will be Rs 75,79,430 and the total repayment will be Rs. 1,45,79,430.
This means that just 1 percent difference in interest rate may cost you Rs 10,80,374 (about Rs 11 lakh) more.
If the difference in interest rates is high, the difference in repayment amount can be very high.
Similarly, if you get a home loan at a higher interest rate due to your poor credit score after missing credit card payments, you will have to pay a huge additional amount as loan repayment.
“Suppose you were in the market for a home loan of Rs 50 lakh for 20 years. If your score is 800, you could get a rate of 8.50 per cent. This means an EMI of Rs 43,391 and a total down payment of Rs 54.13 Payment. Interest. Lakhs. But if your score is 700, you may be offered a rate of 10.50 percent. Here, your EMI is Rs 49,919, and your interest is Rs 69.80 lakhs. That one missed payment will now cost you Rs. It will cost around Rs 16 lakh. There is a danger of it costing more than this,” says Bansal.
As a borrower, you always have the option to improve your credit score and refinance your loan at a lower interest rate.
But if the refinance gets delayed for some reason, you have no option but to repay the higher amount.
Thus, we see that credit-related payments are important.
If you miss payment deadlines you could damage your credit score.
At the time, it may seem like a small thing to you, but if you approach a lender for a home loan, missed payments due to high interest rates can cost you lakhs of rupees.
It is always good to maintain healthy financial habits and make credit payments on time.
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