What Happens if Personal Loan is Not Paid in India?

You can easily meet any of your financial needs with a personal loan application. But as easy as it has become to borrow money, it’s important to pay it back with interest.

Many times, people fail to repay their loan due to unfortunate circumstances, poor budgeting, or not knowing the consequences of missing their EMIs.

What Happens if Personal Loan EMI is Not Paid?

It is important to understand what happens if personal loan EMI is not paid to avoid any further consequences.

You might have to pay a late fee, receive recovery calls, and your credit score will decrease.

The lender also has the right to take legal action against you if you haven’t repaid the long term loan.

Your Rights As a Borrower if Personal Loan is Not Paid in India

As a borrower, it’s your financial responsibility to make timely EMI payments. However, there can be unfortunate circumstances like a job loss or emergencies due to which you’re unable to pay personal loan EMI. 

In situations like these, it’s important to understand your rights as a borrower to reduce your financial burden. 

Right to Get Proper Notice: It’s a lender’s responsibility to communicate to you when you miss your EMI payments.

Right to decide Terms of Contact:  Any financial institution is allowed to contact you only during a fixed time. Typically, this is between 8:00 am to 8:00 pm. 

Right to Fair Value: For secured loans, the financial institution possesses your assets. In the case of non-repayment, the value of the asset has to be determined only after a proper evaluation.

Punishment for Non-Repayment of Personal Plan

But not paying your loans doesn’t only attract late fees and recovery calls but it also reduces your chances of getting a loan in the future.

Usually this is what happens if personal loan is not paid in India:

1. Penalty Charges

You have to pay an additional penalty charge and late fees for non-repayment of the loan. The penalty amount depends on your lender and the number of days you miss your repayment.

You can go through your loan agreement to understand the late payment charged against the non-repayment of your loan.

2. Recovery Calls and Messages.

When you miss your EMI, you can get calls and messages from recovery agents reminding you to complete your payment. These reminders can make you feel distressed.

3. Negative Impact On Credit Score

Every time you miss your repayment, it is directly reported to the credit bureau. This decreases your credit score. And if you have a low credit score, it will become very difficult for you to get high value loans at low interest rates.

4. Reduced Loan Eligibility

Your repayment history is one of the first things that a lender will see before approving you for a loan. If you have a history of defaulting on your loans, lenders will consider you as a high-risk borrower. This will reduce your loan eligibility criteria and make it difficult for you to borrow money from lenders in the future.

5. Legal Action

If you don’t repay your loan for more than 180 days, the lender has the right to take legal action against you to recover the outstanding debt.

Also Read: The Dos and Don’ts of Personal Finance Planning

Impact of Non-Payment of Secured Loan

A secured personal loan is when you have to give collateral as security against the money you borrow. The consequences of defaulting on a secured loan are very similar to defaulting on an unsecured loan. You will face penalty charges, recovery calls and negative impact on credit score. But if you still fail to complete your repayment, the lender has the right to seize your collateral.

How To Get Out Of Personal Loan If Not Paid?

While trying to get out of a personal loan is not the best option, there are some things you can do to make your repayment experience smoother:

Approach your lender and inform them why you won’t be able to complete your EMI payment. 

You can consider taking a debt consolidation loan to close your ongoing EMIs. 

You can negotiate your repayment terms with your lender. This can include reducing the penalty on the payment or increasing your loan tenure. 

Take up an additional source of income so that you’re able to complete your repayments. 

How to Avoid Defaulting on Your Personal Loans?

It’s possible that you’re unable to repay your personal loan due to unforeseen expenses or lack of financial planning. Take these necessary steps to avoid it in the future:

Set all your EMI payments on auto-debit. This way, your EMI will automatically get deducted from your registered bank account on the due date.

Before you take a personal loan, use an EMI calculator to understand your repayments better. Being aware of your EMI beforehand can help you plan a better budget.

If you feel your EMIs are too high, pay your loan in part payments. For this, you need to contact your lender.

Conclusion

It’s important to carefully plan your finances before taking a personal loan. Doing this can save you from consequences like late fees, decrease in credit score and repayment calls from the lender.

Now that you’re aware of what happens if personal loan EMI is not paid, you can take the necessary steps to avoid any further consequences.