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Did you miss personal loan EMI? Know what will happen
- Updated on: 4 Jul 2024
- Published on: 28 Jul 2021
Wondering what happens if a personal loan EMI is missed? Here’s all that you need to know. Personal loans are, undoubtedly, one of the most flexible options to get credit. You can finance big purchases, home renovation projects, investments, etc. It even requires minimal documentation and has a flexible repayment term that ranges from 1 year to 5 years.
Despite the comfortable terms, you may, sometimes, find it difficult to pay the monthly EMI even with a conveniently chosen tenure. Missing a few EMI payments may not be the worst thing, but it can have a few effects on your credit health. If you can’t pay your loan EMI, your lending institution considers you a defaulter.
There are two types of loan defaults that banks and financial institutions classify, and you may fall into any one of these categories:
These are the defaults where you haven’t paid the loan EMI in more than 90 days, so the lender considers you a major defaulter. The drawback of falling into this category is that financial institutions avoid granting loans if you have major payment defaults in their credit reports.
If you don’t exceed 90 days on personal loan EMI payment, it is a minor payment default. It means you make the EMI payment within 90 days after your scheduled date. Note that it can still have an impact on your credit score.
Here are some of the consequences of defaulting on loan EMI payments.
Your credit score determines your loan eligibility. Therefore, the first consequence of defaulting on your EMI payment is a decrease in your credit score. Most lending institutions and banks require a credit score of 750 or more. So, even if you miss one of your EMI payments, your credit score can drop by 50-70 points.
All the information regarding your debt repayments is in your credit report, which can depict your repayment history. So, even with a credit score above 750, you can have low creditworthiness. This is because of the comments about your payment defaults in your credit report. Therefore, the negative comments in your credit report may lead to loan rejection.
Another consequence of defaulting is the additional charges or late fees that your lender may levy along with the EMI payment. The late fee penalty is usually 1-2% of the due EMI amount.
Before extending a personal loan offer, the lender assesses your credit report and score. However, defaulting on EMI payments will create a wrong impression on the lender. They will hesitate to offer credit, reducing your future borrowing capacity.
When you miss loan EMI beyond 90 days of the scheduled due date, the last option for lenders is to send a recovery agent. Banks usually issue a 60-day prior notice to the borrower before declaring the loan account as an NPA.
Here are the repercussions that you have to face when you default on your loan EMIs.
It causes irreparable damage to your credit score. This makes it difficult to get any type of credit in the future, be it a loan or credit card. Even if you somehow manage to improve your credit score with timely repayment, the default history will reflect in your report for the next 7 years.
If you can’t repay the lender, they have no choice but to take the matter to court. Legal actions are costly and time-consuming processes which can also damage your reputation.
If you have co-signers involved in your loan application, they can also face the consequences. Their credit score will also drop as they share the responsibility of loan repayment. They are also involved in the legal action.
Lender-borrower relationships can yield many benefits, such as swift approval in the future and convenient loan terms. If you default, it directly impacts your relationship with your lender. In extreme cases, lenders may resort to blacklisting you from applying for a personal loan in the future.
You must always try to avoid missing out on your loan EMI payments. However, the future is uncertain, and situations can arise where you can’t pay your EMI on time. To avoid these, consider the following tips before applying.
To avoid defaulting on a loan, planning your finances in advance is the key. Using a personal loan EMI calculator works best when comparing multiple factors like interest rates and choosing an EMI plan.
You must communicate with the lender if you expect any delay in making an EMI payment on the scheduled date. Tell them about your financial situation and request them to lower your EMI. They usually reduce the EMIs by extending your loan repayment tenure or converting the unsecured personal loan to a secured loan.
You can request your lender to allow you to make part payments. This will reduce the EMI and the interest payable every month.
Banks and lending institutions can usually offer EMI-free periods to borrowers who have lost their jobs or aren’t running their business operations temporarily. You can get a 3–6-month waiver on your EMI payment from your lending institution.
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. Download the Instant Loan App here, or simply log in to our website to apply for the loan.
With 4 consecutive missing EMIs, lenders declare your loan as default, start the recovery process or take legal action against you. Prior to this, the lender will contact you so you can plan an alternative path for the repayment, such as restructuring the loan.
The following are the rights of a loan defaulter:
If you don’t make timely payments, you will be liable to pay a late payment fee. You will also face a dip in the credit score by 50 or 70 points every time you miss an EMI. Let’s say the 3 consecutive EMIs aren’t paid, and you haven’t contacted the lender. Then, you may have to go through legal action or deal with recovery agents.
To pay your personal loan EMIs online, you can choose between net banking or any other payment mode. You can also opt for an auto debit mandate, which will help you not to miss any EMI and pay on time.
For paying overdue EMIs, you can log into your lender’s web portal. For example, if you’re thinking about how to pay a missed EMI in an HDFC personal loan, this is what you need to do.
In such a case, your credit score decreases, and it becomes substantially challenging for you to get a loan. The lender may also start legal proceedings against you and declare your loan a non-performing asset.
If you miss one EMI, your credit score will drop by 50 – 70 points. If your score was over 800, your future borrowing has no significant impact. However, if your score is 750, getting a loan may be easier once you improve it.
This depends on the eligibility criteria set by the lender. But ensure that you clear your payments without further delay to improve your score.
If you miss 3 EMIs, lenders will consider your loan account as a default one.
Yes, and 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.
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.
