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How to pay your EMIs when you have lost your job?

By Shrestha Saha

29th Aug 2022

3 mins read

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'Will I be able to maintain my credit score now that I have lost my job?'

It is a common concern among service sector employees nowadays, owing to industry layoffs.

It's no new news that the world is going through the worst recession period of all time. In response to such recession fears, Microsoft, Meta, and other tech behemoths have laid off over 32,000 employees in mass layoffs.

Indian startup unicorns such as Unacademy, Ola, MPL, Blinkit, and others also went for wide-scale layoffs in India. We'll get into details such as wide-scale layoffs in another blog. But for now, let's discuss the personal financial impact of such widescale layoffs.

The first concern that comes to our mind is being unable to pay EMIs timely and ruining your credit score. We hope you don't have to face such a situation, but if you do, here's how you can worry less about your EMIs.

You can leverage the moratorium period.

The first option is to implement the moratorium period1 offered by the Reserve Bank of India. You will have to pay the money back with interest later, but it will not be marked as a 'default' in your credit record.

Notify Your Lenders

If you won't be able to pay your EMIs due to job loss, notify your lenders. If you have paid EMIs consistently before losing the job, your lender may be able to assist you in dealing with the situation. For example, depending on your payment history, they may defer payments till you find another job or extend your loan term to lower your EMIs and make them more affordable.

Use your severance package.

If you lose your job, your organisation pays you your notice period's salary. You can use it to pay your EMIs and avoid the fines and interest arising from default payments.

Use your provident fund money.

If you were working for a company that offered PF benefits, you could withdraw this money post losing your job. You can use the money to pay your mortgage and EMI. The Employees' Provident Fund Organisation allows you to withdraw approximately 75% of your PF savings or three months' salary ( Basic + Dearness Allowance2).

Use your Investments

If you have assets, like gold or silver, you can think about selling them to pay off your EMIs. For instance, you can sell the digital gold in your portfolio if you don't want to liquidate your physical gold. You can also get a loan against your gold, but they have a high-interest rate.

If your investment portfolio is strong, you can also liquidate some of it to pay off your EMIs.

You can use your FD investments if you don't want to withdraw your money from a strong portfolio. (You think they'll help you beat inflation, but they usually don't.) Net banking makes it simple to liquidate fixed and recurring deposits.

Take a loan against your insurance policy.

You can get a loan against your life insurance policy. Why is it an option? Because the interest of a loan taken against your insurance policy is significantly lower than a personal loan, the interest rate on loan. Furthermore, because the insurance company already has your information, the loan might be disbursed quickly.

Take help from friends and family.

It's always okay to fall back on your friends and family if you are comfortable doing so. However, if they can help you during your financial crisis, then it's perhaps the best option to go ahead with.

Managing your finances and EMIs when you have lost your job is difficult. These were some ways to manage it without affecting your credit score.


FAQs

What does moratorium mean?

The literal meaning of moratorium is the postponement of an activity. Regarding loans, a moratorium is legal permission given to borrowers to postpone their loan repayment due to some significant concerns (unemployment in this case).

You must manually activate the loan moratorium loan. The moratorium does not waive your loan's principal or interest; it only defers it. In their guidelines, RBI stated that deferred payment of credit card dues and other instalments would not be a default. As a result, your credit score won't suffer.

What is Dearness Allowance in Salary?

Dearness Allowance is primarily to counteract the effects of inflation. It is a percentage of the basic salary calculated using the 12-month All-India Consumer Price Index (AICPI). When the DA exceeds a certain threshold, it is combined with the basic salary. So, it is calculated as a higher percentage (currently 50%) of the basic salary.

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