Just imagine: you haven’t been paying your loan EMIs for a long time, or you’ve been paying very little—maybe your monthly EMI was ₹0. Then one day you suddenly get a notice saying you’ll now have to pay around ₹41,000 (about £500) every month. This news can be shocking and upsetting. But if you understand why this is happening in time, you can manage your expenses better.
This problem mostly happens with student loans, home loans (mortgages) or personal loans. Sometimes this increase happens without any warning—why? There can be many reasons for this, such as:
Reasons behind sudden EMI hikes
Common reasons End of payment pause, recertification of income-based plan, changes in escrow account, interest capitalization
What is the impact? Huge increase in monthly expenses, budget has to be re-plan
What to do? Read loan papers carefully, talk to loan company, find new payment plans, take financial advice
Understand the main reasons in detail
1. End of payment pause
In difficult times like Covid-19, the government had stopped installments on student loans or other loans for some time. During this time neither interest was added nor installments had to be paid. But as soon as this ban is lifted, you have to pay regular installments again.
Example: Someone paid ₹0 installment for a long time, but now when the payment started again, their new installment became close to ₹41,000.
2. Recertification of income based loan scheme
If you have taken a loan whose installment is decided according to your income (like Income-Driven Repayment Plan), then according to your old income, the installments can also be ₹0. But as soon as you recertify your income, and if your income has increased, your EMI also increases.
Example: A medical student had an EMI of ₹0, but after getting a job and a good salary, his EMI increased to ₹41,000.
3. Change in Escrow Account (Related to Mortgage)
If you have taken a loan for a house, then your monthly EMI also includes property tax and insurance. If the amount of tax or insurance increases, the bank increases your EMI so that the money in the escrow account remains complete.
Example: The monthly EMI of a home owner increased from ₹16,000 to ₹20,000 because of the increase in tax and insurance.
4. Interest Capitalization
If you have never paid EMI on your loan for some time, then the interest that was accumulated during that period can be added to the total amount of your loan. This increases your EMI even more.
Example: If ₹2 lakh interest is added to a ₹10 lakh loan, now the interest will be charged on ₹12 lakh—not ₹10 lakh.
A real story – “Sarah’s” experience
Sarah, a recent graduate, did not have a job, so she was on ₹0 EMI. When she got a job of ₹75,000 per annum and re-declared her income, her EMI became close to ₹38,000.
What did she learn? She should have estimated the EMI earlier with the Federal Loan Simulator.
What can you do now?
1. Read the loan documents carefully
Check your loan papers to see what are the terms and conditions, why the EMI can increase, if there are any hidden charges.
2. Contact the loan servicer
If you don’t understand why your EMI has increased, talk to your bank or loan company directly. They can give you the right information and solutions.
3. Explore new repayment plans
If you have a low income or are struggling, ask about other installment plans—like deferment, forbearance, or a new income-based plan.
4. Consider refinancing
If you have a good credit score and stable income, you can refinance your loan—this can lead to a lower interest rate and a lower EMI.
5. Seek financial advice
Talk to a financial advisor who can understand your situation and give you personalized advice.
Conclusion
If your EMI suddenly increases, don’t panic. It can happen for many reasons—but with the right information, understanding, and timely action, you can handle it well.
To keep your financial position strong, always stay updated, take timely action, and don’t hesitate to seek help when you need it.
FAQs
Q1: Why did my monthly loan payment increase so much?
A: Many loans come with promotional offers, such as $0 payments for an introductory period or low initial interest rates. Once that period ends, your regular payments (including principal and interest) begin — which can cause a significant jump.
Q2: What kinds of loans usually have this kind of payment increase?
A: Personal loans, student loans, auto loans, and especially “Buy Now, Pay Later” or deferred-interest loans often have low or no payments upfront, then increase later.
Q3: Is this increase due to interest or late fees?
A: Not necessarily. Your payment may rise even without any late fees — just because the deferred payment period ended, or your interest rate adjusted higher.
Q4: Can I avoid this kind of surprise in the future?
A: Yes. Always read the fine print of your loan agreement. Watch out for terms like “introductory period,” “deferred payments,” or “adjustable rate.”
Q5: What should I do if I can’t afford the new payment?
A: Contact your lender immediately. You may be able to refinance, modify your loan, or qualify for hardship assistance depending on your situation.