Loans today are one of the most popular forms of financing your requirements. More and more people are opting to avail of personal loans with easy eligibility criteria that you can check using the Personal Loan Eligibility Calculator, hassle free documentation and affordable rates of interest from lenders. As a matter of fact, you can even use the Personal Loan EMI Calculator to get an accurate estimate of your monthly installments.
Having said that, availing of any type of loan implies that you are taking on a serious financial obligation. Therefore, you need to be fully cognizant of your actions and be confident that you will be able to repay your debt in full.
However, circumstances may not always be in your control. In the event of an unforeseen emergency, there may come a time when your financial commitments take a back seat. This may lead to defaulting on your promise to pay back your loan as per the loan schedule.
Consequences of a Personal Loan Default
Depending on how airtight the loan contract or agreement is with the lender, the consequences of defaulting on a personal loan can be quite serious. Needless to say, loan default consequences come with several financial repercussions for the borrower.
Let’s take a look at some of the major consequences of defaulting on a personal loan.
- Your Credit Score is Impacted:
Defaulting on your personal loan repayments can send your credit score into a downward spiral. To understand the extent of the impact you need to review your credit report carefully.
Every credit report is divided into two sections. The first section highlights your credit score whereas the second section illustrates your repayments on your debt. If repayment is overdue by 30 days, a mark appears in this second section. If the payment becomes overdue by 60 or 90 days, then this is marked as a serious default.
That said, in the instance that you default on your personal loan repayment, your lender immediately alerts the credit bureaus. This negative report automatically gets captured in your credit history. In the case of unsecured personal loans, the impact on your credit rating is multiplied. This will prevent you from being able to get loans or even credit cards in the future.
- Financial Burden Grows:
A major loan default consequence results in increasing your financial burden. When you fail to make your payments on your personal loan on time, you are not just liable for the monthly instalment alone, but other costs such as late fees, penalties, get added to your existing outstanding.
- Arbitration or Legal Action:
Moreover, your lender may take legal action against you to recover their debt. Unless you figure out how to settle your defaulted personal loan via amicable discourse, you too will start incurring legal fees.
If you are not able to address your default issue in the short term, your overall dues can spiral out of control completely. In the end, you will owe a much higher amount than what was originally due to the lender.
Must Read: How Can SMFG India Credit Personal Loan App Help You During Cash Crunch?
How to Settle a Personal Loan Default?
Getting a personal loan by applying online is easy. Ensuring that you maintain your repayment commitment can be hard.
If you wish to mitigate the consequences at the earliest, here is what you can do to settle a personal loan default.
- Do Not Ignore Notification from the Lender: When you miss your EMI due date, your lender will connect with you via their call centres. You may also receive SMS messages and emails on your registered email address. In case you do not respond to notifications from the lender, the case may be passed on to a collection agency that will help the lender recover the dues on the personal loan. Thus, it is advised to always be aware of your loan payment date. If you need more time, please inform your lender and work out a solution mutually so that this doesn’t happen.
- Issuance of Default Notice: If you miss more than two payments and do not respond to the lender’s calls, you may be issued a default notice by your lender. This notice informs the borrower that their post-dated cheques may be cashed in if there is no response to the lender’s calls, emails or text messages. According to RBI guidelines, if the post dated cheques bounce in case of personal loan default, the lender can bring criminal charges against the borrower.
- Negotiate With your Lender: If you are unable to make your repayments on your personal loan for genuine reasons, it is always advisable to communicate with your lender. . Your lender may opt to enter into negotiations with you to find a solution to help you tide over the situation. Under special circumstances, the lender may even provide you with suitable options.
If you do not reach a resolution with your lender then the loan default consequences can be dire. Therefore, it is best to weigh your repayment abilities when you choose to avail an unsecured personal loan. Opt for a lending partner with flexible personal loan conditions that matches your repayment capabilities.
Most importantly, always pay your loan EMIs in full and on time. Never miss a single payment. Do not go for partial payment of EMI or paying on the minimum amount due - this can cause interest to accrue on the outstanding amount, thereby increasing your debt. Manage your expenses sparingly for the duration of the loan tenure, and ensure that you are able to meet the timelines.