Smart Ways To Manage Your Ongoing Loan EMIs If You Have Lost Your Job Amid Layoffs

The mere thought of suddenly not having your job anymore can make anyone jittery, right? It¡¯s no less than a nightmare for anyone, especially if they have dependents such as a spouse, parents and children.

And what can make it even more difficult is the burden of ongoing loan EMIs, whether it's a home loan, car loan or personal loan.

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But why are we suddenly talking about job losses? It's because of the global layoffs happening in recent months, with many companies, from startups to tech giants, announcing mass layoffs amid an economic slowdown and recession fears.

And unluckily, if you too are amongst those laid off from your job, the sudden halt in a regular flow of income can be a huge hiccup in managing your finances. While you are looking at ways to get back on track as soon as possible with a new job, what about your loan EMIs which need to be repaid every month?

If you are puzzled about and are looking for answers for yourself or for someone else you know who has been laid off, check out this list of smart ways to handle your finances during a rough patch:

Request for loan tenure extension

Layoff implies a halt in your income inflow, which can lead to difficulty in repayment of your existing loan EMIs, more so if you had not factored in these EMI repayments in your emergency fund.

So, since a longer repayment tenure means smaller loan EMIs, you can convey your financial issue (of layoff) to your bank/other lender and request them to extend your loan tenure. Getting your loan tenure stretched would bring down your loan EMI amount, which can turn out to be helpful in such financially challenging situations, thus avoiding a possible loan default as well.

However, it's noteworthy that extending your loan tenure would also imply a higher overall interest cost on your existing loan. That¡¯s why you can try to prepay the loan later whenever you have surplus funds in future, in order to lower the overall interest cost.

Ask for grace period

Besides the option to get your loan tenure extended, you may also ask your lender about the possibility of a grace period, if available. In the grace period, borrowers can delay payment of their EMIs for a certain period of time. This can give you a breathing window to sort your finances and look for opportunities to earn income.

Utilise your emergency fund

It's the rainy days that remind us of the importance of an umbrella, right? Such is the case with an emergency fund.

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For the uninitiated, an emergency fund is the money you keep aside for covering your recurring and mandatory expenses such as loan EMIs, house rent, children¡¯s education fees, utility bills etc. when a financial emergency (like sudden job loss or a health issue) arises which temporarily halts your inflow of income.

Ideally, an adequate emergency fund includes an amount equal to at least six months¡¯ recurring expenses.

In case you have suffered job loss due to layoffs and have so far been maintaining an adequate emergency fund, then this fund can bail you out of such financial exigency. You can utilise your emergency fund for repaying your loan EMIs, pending credit card bills etc, if need be.

Do note that any delay in EMI payments can not only attract various fees/charges and penalties, but it can also adversely affect your credit score, which could then hamper your eligibility if you wished to take a loan or credit card in the near future.

Redeem Low Yield Investments

Depending on the investments you have, their returns and the applicable interest rates on your ongoing loans, this can be another option to manage your finances in case of sudden job loss.

As the interest rates on loans have been rising in the past few quarters due to RBI's multiple repo rate hikes, rates on home loans, car loans, personal loans etc. have been going up too. So in case you have investments in low-yield instruments such as debt funds, bonds and bank FDs, you can redeem them (if not at loss), and utilise that money to pay your EMIs with high interest rates.

For example, if you have a bank FD at, say, 5%, and your ongoing loan interest rate is say, 7% to 8% or even more, doesn't it make sense to redeem the low-yield investment and utilise that money to pay high-interest cost loans?

Also Read: How To Manage Your Financial Health When Handling Multiple Loans

How to be financially prepared for a pay cut or job loss

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Luckily, if you are among those who haven't been laid off yet, it's wise to take this as an opportunity to check if your finances are ready in case the bad news comes by someday.

If the past two to three years of the pandemic weren't enough to make you realise the uncertainty of life, then at least these mass global layoffs may have.

So take it as an opportunity to relook at your finances and ensure you have the following parameters covered:

Life and health insurance

One of the first bases you need to cover in your financial life, irrespective of your age (whether you're a millennial in your 20s or in the 35-40 age bracket) or the stage your career is at, is insurance.

We all know how this pandemic turned out to be the biggest wake-up call to make most of us realise the importance of having life and health insurance. But in case you still don't have it, now is the time to do so. After all, better late than never!

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An adequate life insurance in place will help your family financially in case of your untimely demise, whereas an apt health insurance would help you and your family handle medical expenses and exigencies. Click here to understand the importance of life insurance and health insurance.

Investments in liquid instruments

Given that PPF, real estate, and gold are among the popular investment vehicles in our country, many people are often stuck with liquidity crisis when adverse financial situations like a job loss arrive. As these relatively less liquid investment options can result in you falling short of liquid money when needed, isn't it wise to shift, or at least have a part of your investment portfolio kept in highly liquid instruments, like savings accounts with high interest rates (like small finance banks and some private sector banks) and liquid funds (a category of debt mutual funds).

So, having some of your money kept in these instruments would help you turn them into cash/transfer to your bank account quickly whenever needed, thus giving you much-needed liquidity in adverse financial scenarios like layoffs.

Or else, if you still choose to let your investments remain entirely invested in low liquidity investments such as PPF (which has a 15-year lock-in period), tax saving FDs (five-year lock-in period), real estate (can usually take some weeks or months to find the right deal), etc., you are likely to fall short of liquid money to fall back on when the need arises.

Adequate emergency fund

The income disruptions and job losses caused by the pandemic and recent layoffs have re-emphasised the importance of having an adequate emergency fund in place. So, to strengthen your finances when facing a pay cut or job loss, ensure to have an adequate emergency fund.

An amount equal to six times your recurring monthly mandatory expenses is a must, but it would be even better to have it equal to expenses of 9-12 months. This will act as a financial cushion you can fall back on during financial exigencies.

Also Read: 5 Rights You Must Know As A Loan Defaulter

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