Between 2015 and 2018, unsecured loans have witnessed a growth of approximately 4 times bank credit. The spurt in people opting for personal loans is attributed to various reasons like technology-based disbursements, lower interest rates, quicker disbursements etc. Although availing quick personal loans may be beneficial in most situations, the ease of availing loans accompanied by other unforeseen events in life that may cause you to miss a personal loan EMI.
Who is a Loan Defaulter?
Failure on the part of the borrower to honor several EMIs in a timely fashion and further inability to make payment during the grace period or pay late fees earns the title of a loan defaulter.
Must Read: How to Apply for a Personal Loan Online - Step by Step Process
Missed loans are classified into 2 main categories by most major lenders:
- Major Defaults
Not honoring your loan EMI for more than 90 days is considered a major default and can severely affect your financial health. This can affect your ability to access funds in the form of loans in the future.
- Minor Defaults
Failure on the part of the borrower to honor the EMIs for less than 90 days is referred to as a minor default.
What happens if Personal Loan EMI is Missed?
- Affects credit score and ability to obtain finance
The credit score is an important factor for all lenders while evaluating a potential borrower. Lenders refer to the credit report and score generated by credit rating agencies and this plays a determining role in whether a candidate’s application is to be accepted or rejected. Most lenders consider a score of above 750 healthy which helps in availing loans at attractive rates of interest. Missing your EMI payment can lead to a setback in your credit score affecting your ability to obtain credit in the future.
- Increase in the amount payable
Delay in payment of EMIs attracts additional interest at the rate of 2% per month, thereby increasing the total amount payable.
- Legal Action
Sometimes, lending institutions might initiate legal proceedings to recover the money. However, since personal loans are unsecured, lenders will try recovering the amount by having discussions with the defaulter. In case of minor defaults - such as a missed payment due to a genuine issue, it is recommended for borrowers to discuss the issue with their lenders as soon as possible so that there is no major impact in terms of extra charges or credit score.
Must Read: 5 Simple Ways to Repay Your Personal Loan Quickly
How Can I Avoid Defaulting on my EMI Payments?
On borrowing a loan attempts should be made to avoid defaulting on payments, however, in unfortunate situations that might cause you to default on your payments, these are the different options that you can consider:
- Plan your finances in advance
A personal loan EMI calculator is an online tool that can help you arrive at an estimate of how much you can borrow taking into consideration multiple factors. This, in turn, can help plan your monthly EMIs at the outset ensuring that your loan repayments do not hinder your living expenses.
- Communicate with your lender
If, due to any reason you foresee inability to repay the loan amount or even a part of the loan payment, it is in your interest that you communicate to the lender about your economic situation. These are the various options you can consider in this situation:
- In the unfortunate situation that you are laid off or your business comes to a temporary halt, you can request your lender to provide you with a brief waiver until the situation improves. For instance, during the economic fallout due to the COVID-19 pandemic and subsequent lockdowns, the RBI had directed all lenders to provide a 3-month moratorium facility, which later got extended to another 3 months. Post Sep, 2020; the RBI also allowed a one-time restructuring of loans, which enabled borrowers affected by the economic crisis to get some relief in terms of EMI amount reduction or in some cases, an extended moratorium.
- You could request your lender to allow you to make part payments which can help in reducing the EMI and the interest payable every month.
- Manage your budget and cut expenses so that you can use the funds towards loan repayment.
Opt for a Personal Loan Balance Transfer
If you are considering refinancing your loan to avail a better deal on your loan, SMFG India Credit offers a variety of loan products to suit your requirements. You can be assured of a practical solution that meets your requirements.
If you happen to miss a personal loan EMI, don’t be disheartened. Opt for the most suitable solution and stay focused on your goal of building a strong financial background in the long run!
When a borrower misses an EMI (Equated Monthly Installment) on a personal loan, it can hurt their credit score and they may have to pay fees and penalties for being late. Personal loan EMI payments should be made on time, so borrowers should make sure they have enough money in their account on the due date. If they are having trouble paying back the loan, they should talk to the lender and try to come up with a payment plan or negotiate a new schedule. To avoid late payment fees and penalties, it's important to talk to the lender as soon as possible.
How can I pay my missed EMI?
First, notify the lender of the missed payment. Call their customer service line or visit a branch to discuss the situation and your choices. Then, check your personal loan balance, including any late payment costs or penalties. Pay the missed EMI via online banking, mobile banking, debit card, or cheque. After paying, check your personal loan account statement to see if the payment was credited and the balance updated.
How much is the penalty for late EMI?
Late EMI (Equated Monthly Installment) penalties vary by lender and loan arrangement. If the borrower misses an EMI payment, the lender charges a specified sum. Late payment fees are 1-3% of the outstanding EMI. The lender may levy interest on overdue EMIs in addition to the late payment fee. This interest may be higher than the borrowing rate.
What is the penalty for late payment of personal loan EMI?
Late payment fees are 1-3% of the outstanding EMI. If the borrower misses payments for a long time, the lender may assess penalty interest. The lender may sue the borrower for not paying the EMI. The borrower may have to pay legal expenses and other costs if the lender sues or seizes assets.
What will happen if I am not able to pay 3 months' EMI?
If you miss three personal loan EMIs, your credit score could suffer. Missing three or more EMIs can result in the following:
- Late Payment Charges: These are levied on the outstanding EMI for each month you miss.
- Legal Action: If you miss payments for a long time, the lender may sue to collect. This includes suing, seizing assets, or hiring a debt collector. Legal action can damage your credit and increase fees.
- Default Status: If you miss three or more EMIs, your personal loan account becomes an NPA. This will lower your credit score.
- Recovery Agents: A debt recovery agent hired by the lender may threaten and harass you and your family.