Availing a personal loan today is way simpler than ever. Public and private sector banks, along with NBFCs and digital lenders, make it very simple to avail of personal loans to mitigate your different financial requirements. Moreover, you can review your personal loan rates and charges even by visiting the lenders’ respective websites and all lenders now digitally offer loans through the online medium. For instance, if you have zeroed on HDFC bank to avail a personal loan, then you can visit the HDFC bank’s site to fetch its MITC (most important terms and conditions) to learn about HDFC personal loan interest rates, processing charges etc. Likewise, if you have selected SBI to avail a personal loan, then you must visit SBI’s site to fetch its MITC to view SBI personal loan interest rates, administrative charges, loan tenure, processing fees etc.
As an outcome, now it has become easier for the loan applicants to avail of loans from their preferred lenders without thinking twice about it. However, one of the disadvantages of easy availability of personal loans is that you fail to factor in the financial aspect of loans, majorly the repayment and adverse implication upon non-repayment of EMI.
A personal loan is a correct option for those times when you are in dire need of funds. You can simply avail of the funds both through the online or offline medium without any restriction on the funds end usage. However, once you avail of the funds from a personal loan to mitigate your personal or professional requirements, ensure to repay your loan by the due date. In case you fail to make the repayment of the loan by the due date, you are looked upon as a defaulter. Every lender comes with its unique set of conditions if you default your personal loan EMI. Note that failure to repay the personal loan EMI on time may make you face certain consequences. Explained here are the consequences you may witness.
What does loan default mean?
If you fail to repay your personal loan EMI by the due date, then you become a defaulter. Keep in mind that few lenders may provide a certain grace period before they charge a late payment fee on your EMI. If you repay the loan EMI by the grace period, then no late payment fee may be charged, and you may not be addressed as a loan defaulter. Distinct lenders have distinct grace periods and varying fee structures. Remember, if you miss out on just one repayment, then you may not be addressed as a defaulter. But if you default on more than 2 EMIs, you may be reported as a loan defaulter. This may not just result in an increment of your overall loan cost as various fees like late payment charges get added to it, but also your credit score is negatively impacted, which discourages other lenders and creditors from lending you any credit option in the future.
Loan default classification –
Minor default
A loan account where the non-repayment period is below 90 days is called minor default. If you have a minor default in your credit report, then you can recoup from such an allegation by working on improving your credit score and ensuring to not miss any of your loan or credit card dues in the future.
Major default
Major default takes place when you have not made any payment of your loan for over 90 days. Many of the lenders avoid lending you big-ticket amounts if you have a history of a major default. Also, your loan account may be marked as NPA (non-performing asset) if you fail to repay the dues for over 90 days.
What are the consequences of missing your personal loan EMI repayment?
Impact on your credit score
Your credit score is the major parameter that decides your loan eligibility. Any kind of financial transaction linked with loan repayment is recorded on your report. The lender instantly reports the CIBIL and other credit bureaus like CRIF HighMark, Experian, and Equifax for a record. Once reported, your credit score falls. While a missed payment may result in a minor drop, multiple missed payments may massively drop your score to a level wherein the recovery may take years. Credit score drop discourages many lenders/creditors from lending you any loan or credit card in case you place an application. Thus, to keep up your credit eligibility, ensure to repay your personal loan EMI by the due date.
Additional and late payment fees
If you repay your personal loan EMIs late, you might incur additional fees from the lender. In case you repay your loan EMIs after the due date, but within the grace period as agreed by the lender, there may not be an additional late payment fee. However, if you repay the EMI post completion of the grace period, then a late payment penalty is charged, which substantially enhances your overall loan cost. Besides paying a higher loan EMI, you even get addressed by the term loan defaulter.
Legal implications
On personal loan default, you will not necessarily be jailed, but there can be certain kinds of legal implications like a civil lawsuit. However, it is extremely rare, and this option is selected by the lender, particularly when it has made numerous attempts but failed to recover the loan proceeds. Hence, in such cases, legal action generally is the only resort.
Ending note
Make sure to understand your finances in-depth before you place the personal loan application. Note that while it is easy to avail credit owing to its easy processing, quick disbursement, and minimal documentation requirement, ensuring to meet the EMIs timely is a big burden that you commit to bear. Thus, ensure to live up to this commitment and ensure to always repay the EMIs in full by the due date to avoid any kind of negative consequences as mentioned above. To avoid any kind of defaults in future, ensure to use the online personal loan EMI calculator before placing the loan application. By using the calculator, you can compute your optimal EMI as per your repayment capacity and cash flow.
