What happens if a Personal loan is not paidAnyone who takes a personal loan knows that a fixed EMI is to be paid to clear off the loan. But unfortunately, individuals fall prey to tight financial situations that forcibly causes no payment status for the loan taken. A medical emergency, loss of job, urgent travel etc. are some examples that cause delay in EMI payments. In such cases when you are unable to make repayments, it is better to inform the lender about your situation. Most lenders will offer support and help with appropriate options to get your personal loan payment on track.
But in case the lender has fixed repayment terms and does not offer the necessary support, you may face the below mentioned repercussions.
Repercussions if Personal Loan is not Paid
Default payments on loan is not a crime, thus the borrower cannot get arrested, however the lender can file a case against the borrower under section 138 in case of a cheque bounce or ECS bounce and then as per the RBI rules the borrower can be punished.
Here are few things you can expect if you default on a personal loan:
- Can impact your credit score- Lenders report ignored loan payments to credit bureaus of India such as CIBIL and Equifax and therefore your credit score is affected to an extent. Low credit score can have a negative impact to get any kind of credit or loans in future.
- Your co-signer or guarantor is affected- The lender may try to recover the missed payments of personal loan through the co-signer or the guarantor. The lender may give them reminder calls in order to recover the personal loan amount via their source.
- Extra charges & penalties- The lender may levy some penalty or additional extra charges on late or default personal loan payments. When you default on EMI payments penalty charges are levied that can be from 2% or more of your EMI amount.
- Loss of collateral- Though personal loan is an unsecured loan, in certain cases lender may ask for a collateral against your loan when you are unable to pay the loan or have missed EMI payments repeatedly.
- Increase in Interest rate- The lender may charge high interest rate on your loan amount, if you default or do not make timely payment of EMIs as you have been considered as a financial threat to the lender.
- Financial burden may increase- Due to the increase in interest rate and other penalty charges, it is apparent that your financial situation will become difficult, burdening every day expenses.
How to get out of personal loan if not paid?
Firstly, one should prevent getting into such situations and in case you have landed yourself in defaulters, following things can be done to get out of a personal loan if not paid:
- Inform your lender about your condition and reason for not able to pay the personal loan EMI. You may ask for more time to make personal loan payment.
- You can request your lender to restructure the personal loan by increasing the loan tenure and decreasing the EMIs.
- Debt consolidation Loan is another smart option to clear all the old debts at once. This loan will enable you to clear all the past payments covered under one personal loan.
- Look for a better job or freelance projects to earn more money or increase your income. If that’s not the choice, then plan your monthly expenses in a way that EMIs can be paid without delay.
- If you see no other option, you can request the lender for a settlement by handing over an asset of the equal value that clears the loan.
However, a personal loan is an unsecured loan and is given based on your credit history or repayment ability. And it is your liability to repay the personal loan amount within the fixed tenure and time. Negligence on loan payments can adversely affect your credit score and financial status. So, before applying for a personal loan, remember these consequences and prevent yourself from falling in such situations.