Dealing with downturn: Tell your lender about job loss in time and save your house

The last few years have been testing times for all of usgiven the volatile macro-economic situation. Though we hope that things will get better, it is important to plan for the worst. Managing credit commitments when the going gets tough poses a financial challenge and presents another likely credit crossroad that we may need to understand how to handle. Here we talk about a working professional, Mayank and the way he went about managing his existing credit commitments even though he had just been handed the pink slip.

Taking Control
Mayank found himself in such a situation when he lost his well-paying job with a renowned investment bank. He was married with two children and stayed in an up-market area in the city in his own flat that he had bought on a home loan. His credit commitments at the time were in line with that of his lifestyle, but when he lost his job he needed to make sure that his credit situation remained positive even without the steady income flow.

More from Money

Rationalise DDT rate to 10% in upcoming Budget, industry body CII tells govt BSE Sensex trades flat ahead of Q3 results; Bharti Airtel, Kotak Bank among major gainers

Understanding credit history
Mayank was well aware that delays in repayments would affect his credit history. This would consequently impact his ability to approach a bank or an NBFC for his financing needs in the future.

[caption id=“attachment_74221” align=“alignleft” width=“380”]  To be a responsible borrower, you should inform your lender about job loss in time. Image:Thinkstock[/caption]

Banks and NBFCs provide a record of your loan and credit card repayments to credit information companies (CIC) like Experian. A CIC is an independent organisation that compiles identity information, credit transactions and payment histories. When you apply for a loan, banks will cross check information you have provided with your credit report from a CIC to see that the information you have provided in your application is in line with the details of your credit history.

A credit report contains identity information, past and present credit obligations, previous addresses and enquiries made by banks and NBFCs for all your loan applications. If your report shows that you repay credit on time, this will help you get credit at favourable terms. In foreign countries, a good credit report could also reward you with a lower interest rate on your credit commitments.

Make your action plan
Mayank decided to take control of his finances while he started job hunting. He knew that there could be some delay in getting a new job, so he needed to manage his finances with the savings that he had accumulated over the years.

He started by getting a copy of his credit report from a CIC. This helped him recollect all the lenders he had existing credit obligations with and take stock of his financial obligations.

Be conscientious
Looking at his credit liabilities, Mayank realised that it would be a struggle to keep up with his repayments. He sought the advice of a credible credit counselling agency which offers free consultation. Acting on this advice, Mayank contacted his lenders. His apprehension that the lenders will not cooperate was proven wrong. On the contrary, they were happy that Mayank had taken the initiative to keep them informed and inform them of his unfortunate circumstances.

The housing finance company official told him that many people who find it difficult to pay the home loan EMI in the future, could lose their home. But if everyone acted responsibly and let their lender know about the change in circumstances immediately, the lender might be able to help.

The same was true for other lenders, including credit card companies, banks and finance companies he had loans or other credit accounts with. Banks and NBFCs do not want the bother or expense of chasing for payments or in extreme cases, going to court.

Mayank ensured that he covered his monthly obligations with his savings. He eventually got a well paying job and continued paying his instalments on time.

Key points to remember
• Take stock of your obligations through your credit report

• Realistically asses your ability to repay your loans with your savings (yes, it is very important to save!)

• Take help from credit counselling agencies who offer free advice

• Be transparent to your lenders

Most of all, be a responsible borrower.

The writer is managing director, Experian Credit Information Company of India, and country manager, Experian India.