What Happens When You Don’t Repay A Loan On Time?
When you take a personal loan from a lender, you automatically enter into legal binding to repay the loan as agreed. Even though you have every intention of repaying the loan, that might not be the case. You get caught up in your daily activities and you may miss one payment, followed by another, and before you know it, you have been labeled as a personal loan defaulter. So, what happens when you miss a payment or two? It’s significant to know how a personal loan default affects you and your credit history.
Who is a loan defaulter?
Of course, if you miss the payment date once, that won’t make you a defaulter. But if you fail to pay several EMIs back-to-back, your lender may then report you as a defaulter. Some of them may even offer a grace period after the due date for you to make the payment; however, you will be charged a certain amount as a late fee.
What happens if you miss your EMIs?
Here are some things you need to keep in mind:
Your credit score will be affected
All banks and NBFCs are expected to report missed payments to the credit bureaus, such as the CIBIL and Equifax. Once reported, it will lower your CIBIL score severely and this will make it hard for you to get any form of credit/loan in the future
Your co-signer is impacted
If you have a co-signer or guarantor associated with the personal loan, the missed payments will automatically affect their credit score too. Furthermore, they will receive frequent calls from the lender and the recovery agents in an attempt to recover the loan amount.
Your financial worries will grow
Late fees, penalties, legal costs, etc. add up to the unsettled loan balance making the total much higher than what you owe them
Banks or NBFCs may take a legal action
If the institution fails to recover the due amount from you, they may decide to proceed legally to recover the money.
Here’s what you can do if you have defaulted on your personal loan
If you have missed multiple payments, below are few steps to tackle the situation:
Talk to your lender
There is nothing that cannot be resolved by a simple conversation. Reach out to your lender and explain the reason for the default. They may even come up with a solution that benefits you both.
You could request your lender for more time to make the repayment. If nothing works, you can then request the bank for a settlement.
Look at ways to increase your income or cut back expenses
Explore some short-term jobs or freelance projects to earn more money. If that’s not an option, then consider planning and cutting back on your monthly expenses.
Know your rights as a defaulter
The banks and other financial institutions are governed by the Reserve Bank of India (RBI). They are devoted to best practices as a part of the code of commitment to their customers. So, as per law, the banks or the recovery agents chosen by the banks cannot threaten or manhandle you.
A personal loan is an unsecured loan and is given to you keeping in mind your repayment ability. Therefore, it is your obligation to repay the loan as agreed. Not doing so can have negative consequences on your credit health and financial life.