What is Loan Overdue? Important Things to Know About It

A single missed EMI (Equated Monthly Instalment) starts as a small inconvenience but can quickly snowball into a larger financial burden.

Imagine facing an unexpected medical emergency that leads to mounting expenses, and before you realise it, your loan payment is overdue. Caught between competing priorities, the pressure builds up, and overdue payments begin to impact your financial health.

Overdue loans don’t just strain your finances; they also leave a lasting imprint on your credit report. However, understanding how these loans work and taking the right steps can help you regain control of your financial situation.

In this article, we’ll delve into everything you need to know about loan overdue in India – its implications, impact on your credit score, and, most importantly, how to manage loan repayment after overdue with practical strategies and informed decisions.

Let Us Understand How Loan Overdue Works with an Example

Akshay, a salaried professional, takes out a personal loan for 36 months to cover an urgent expense, with an EMI of INR 10,000 per month. For the first 12 months, he makes timely payments. However, a medical emergency strains his finances, causing him to miss an EMI payment. As a result, his unpaid INR 10,000 becomes an overdue amount.

As per the lender’s policy, a penalty is added to the overdue balance, which begins to grow faster than expected due to accumulating interest and late payment fees.

With each missed loan payment, the financial burden increases, gradually turning into emotional stress. Over time, the compounding interest and overdue loan status could negatively impact his credit score and history.

Effects of Loan Overdue on Your Finances

Consequences of an overdue loan include:

• Declining Credit Score: Each late loan payment is reported to credit bureaus, serving as a red flag for lenders. The impact of overdue loans on credit scores is significant, potentially reducing your creditworthiness and limiting your borrowing options.
• Accumulated Penalty Interest: Lenders typically impose late payment penalties, which can compound over time. This means the unpaid balance, including penalties, grows rapidly. Before long, the total amount owed may become far more burdensome than the original EMI.
• Risk of Losing Collateral: For secured loans backed by assets such as a home or car, prolonged overdue payments put these assets at risk. In case of loan default, lenders have the right to repossess or auction the collateral to recover the outstanding dues.
• Limited Access to Future Credit: A history of overdue payments makes lenders wary. Even if you eventually repay the overdue amount, they may view you as a higher-risk borrower. This could result in higher interest rates, stricter loan terms, or even rejections for future loan applications.

What To Do When You Have a Loan Overdue?

If your loan payment is overdue, taking timely action is crucial to prevent further financial complications. Here are some steps you can take:

• Communicate with Your Lender: The first and most important step is to contact your lender as soon as you realise you might miss a payment. Lenders often appreciate proactive borrowers and may offer temporary solutions such as deferring your payment, restructuring your EMI schedule, or even waiving penalties in cases of genuine financial hardship.
• Request a Restructuring Plan: If you anticipate prolonged financial difficulties, negotiating a loan restructuring plan could be beneficial. This may involve extending the loan tenure, reducing EMI amounts, or temporarily pausing payments. While not a permanent fix, it provides much-needed breathing space to stabilise your finances and prevent further defaults.
• Seek Financial Counseling: If the situation feels overwhelming, consult a professional financial counsellor. They can help you evaluate your financial health, develop a realistic repayment strategy, and potentially negotiate with lenders on your behalf.
• Explore Alternative Solutions: If you're juggling multiple debts, consolidating them with a personal loan could be an option. A debt consolidation loan allows you to combine all outstanding loans into a single payment, often with a lower interest rate. However, it's important to carefully evaluate this option to ensure it doesn't lead to more debt in the long run.
• Consider Loan Settlement: If no other solution works, you might explore loan settlement, which involves negotiating with the lender to pay a lump sum that is lower than the outstanding amount to close the account. While this can provide financial relief, it’s important to note that loan settlements can significantly impact your credit score, and lenders are not obligated to accept a settlement offer.

Final Word

While an overdue loan can negatively impact your financial health, it’s a challenge you can overcome with the right approach. Proactive measures, such as communicating with your lender or restructuring your loan payments, can help safeguard your finances and protect your credit health in the long run.

If you’re seeking financial support, SMFG India Credit offers personal loans of up to INR 30 lakhs*. Interest rates starting from 13%* per annum and a flexible repayment tenure ranging from 12 to 60 months* help keep EMIs manageable. Use our EMI calculator to estimate your monthly obligations and apply online today.