Personal loans are easy to get, need minimal documents and come with simple EMIs. But sometimes, unexpected expenses or cash flow issues can lead to a missed payment. Even an EMI missed by one day can show up in your lender’s system, so it’s important to know what happens next. A single delay may not make you a major defaulter, but it can still affect your credit score and add extra charges. But if the EMI remains unpaid for longer, it can lead to recovery action.
Read on to learn what happens when you miss a personal loan EMI and how to stay in control of your loan.
What Happens if EMI is Not Paid on Time?
Missing an EMI can affect your financial profile in many ways. Here’s what happens if EMI is not paid on time:
- Credit score drop: Your score can fall by 50-70 points after a missed EMI. And since your credit score determines your loan eligibility, this makes it harder to qualify for new loans or get good interest rates in the future.
- Lower creditworthiness: Even if your score stays high, the ‘missed payment’ remark stays on your credit report. Lenders see this as a risk, which can lead to delays or rejections.
- Extra fees added: Lenders charge late fees, usually around 1-2% of the EMI amount. These penalties increase your total repayment and strain your monthly budget.
- Reduced loan eligibility: When lenders notice missed EMIs, they may reduce the loan amount they offer you later. It signals that repayments may be uncertain.
- Recovery action later: If the EMI stays unpaid for 90 days or more, lenders may send recovery agents after giving prior notice. This is usually the last step if reminders are ignored.
Classifications of Loan Defaults
Loan defaults are usually grouped into two types:
- Minor defaults: Your EMI is delayed but paid within 90 days. It still affects your credit score, but the impact is smaller.
- Major defaults: Your EMI remains unpaid for more than 90 days. Lenders treat this as a serious default and may avoid approving future loans.
What are the Impacts of Personal Loan EMI Defaults?
Here are the repercussions you may face when you miss your loan EMIs:
- Credit score drop: Missing EMIs lowers your credit score and makes future loan or credit card approvals difficult. The default stays on your report for up to 7 years.
- Legal action: If EMIs remain unpaid, lenders can take legal steps to recover dues. This process is stressful, time-consuming and affects your financial reputation.
- Impact on co-signer: If someone co-signed your loan, their credit score also falls. They may also be involved in recovery communication or legal proceedings.
- Risk of being blacklisted: Defaulting can harm your relationship with the lender. In some cases, lenders may restrict or deny future loan applications.
Ways to Avoid Loan Defaults
Here’s how you can avoid loan defaults and stay on track with your EMIs:
- Plan your budget early: Check your income, expenses and EMI affordability before applying. Use a personal loan EMI calculator to pick the right tenure and amount.
- Request for lower EMIs: If you expect a delay, inform your lender in advance. They may reduce your EMI by extending the tenure or switching you to a secured loan.
- Make part-payments: Paying a portion of the loan early reduces your monthly EMI and total interest. This can make repayment easier.
- Request an EMI break: If you face job loss or temporary business issues, ask for a 3-6 month EMI-free period. Many lenders offer this relief on request.
Planning your finances to avoid any chance of defaulting on EMI payments is crucial. With the easy availability of quick personal loans, you need to correctly assess your repayment capacity before applying for one.
Alternatively, you can get an Instant Personal Loan from Fibe. You can get quick access to funds with a flexible repayment duration, along with various other benefits.
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FAQs on Personal Loan Default
What happens if 4 EMIs are not paid?
With 4 consecutive missing EMIs, lenders declare your loan as default, start the recovery process or take legal action against you. Before this, the lender will contact you so you can plan an alternative path for the repayment, such as restructuring the loan.
2. Can I stop EMI for 2 months?
Yes. It’s called a moratorium period, where you don’t have to pay any EMIs. You can request your lender for it when you land in a financial situation. However, this depends on your lender.
3. What happens if I miss 1 loan payment?
If you miss one EMI, your credit score will take a temporary hit. You will also have to pay a late payment penalty. Since this damage is reversible, you can pay overdue EMIs on the lender’s portal.
4. Are there late-fee charges if I fail to pay my EMI on time?
Yes. Most lenders charge a late payment fee of around 1 to 2 percent of the EMI amount. This is added to your next month’s payment. The longer the delay, the higher the penalty you may end up paying.
5. How many EMIs can I miss before the lender treats my loan as a default?
Your loan is treated as a default if EMIs remain unpaid for 90 days or more. Even missing 1-2 EMIs puts you at risk. But once the delay crosses 3 months, lenders classify the loan as a default and may start recovery action.
