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Tata Capital > Blog > Steps to take if you can’t Pay Your Personal Loan

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Steps to take if you can’t Pay Your Personal Loan

Steps to take if you can’t Pay Your Personal Loan

Apart from sourcing funds, taking a personal loan also entails timely EMI payments to a lender. Now, what if you have every intention of paying off your loan on time, but unpredictable circumstances in life cause hindrance in doing so?

Don’t fret! You can keep up with your personal finance repayment schedule by following the steps listed below.

#Step 1 – Stay calm and composed

Under pressing circumstances that may lead to personal loan default, your first reaction could be that of panic; however, stressing out will only make matters worse. Collect yourself and figure out the reason for missing out on loan repayments.

#Step 2 – Talk to your lender

One must never underestimate the power of communication. So, do not hesitate to talk to your lender, explaining the reason for defaulting on personal loan repayments. Your lender may come up with any one of the following solutions –

  • You may be allowed more time to pay off your loan.
  • Your lender may restructure the loan – Though they cannot change the personal loan interest rate, they may increase the loan tenure.
  • In the worst-case scenario, you can request the lending institution for a settlement.

#Step 3 – Consider refinancing the loan

Another way out is to opt for loan refinancing. This way, you may be able to reduce your personal loan EMI. Refinancing is simply shifting your existing loan to another lending institution provided they offer a lower rate of interest. However, you need to ensure you have a good credit score to be able to refinance your loan amount.

#Step 4 – Look for ways to increase income

To deal with defaulting on personal finance EMIs, you can consider looking for other income sources; take up short-term jobs such as freelancing projects to help you secure more money. However, if that is ruled out, an alternative would be to look for ways to budget your existing income. Cut back on unnecessary expenses, make use of mega-sales and coupons for purchases, cut down on unnecessary travel, etc.

#Step 5 – Sell something of value

To pay off your personal credit or loan, you can consider selling some item of value such as a piece of art, jewellery, etc. If that is not possible, there is another way. We often have unused items lying around. This includes anything – from books to toys. Consider selling them off and using the money towards loan repayment.

Also, read – How To Improve Your CIBIL Score After A Loan Settlement?

What Happens if You Miss a Personal Loan EMI?

Here’s a look at what happens if you default on your personal loan EMI payments:

  • Penalty charges: When you miss a personal loan EMI, the subsequent EMI will be slightly higher as it will include a late fee for the missed EMI.
  • Increased outstanding amount: The unpaid balance will continue to accrue interest for as long as the payment is not made, increasing your overall debt burden.
  • Fall in credit score: A default in the payment of your personal loan EMI will be recorded by the credit bureaus and affect your credit report, jeopardising your ability to apply for a loan in the future.
  • Lender follow-ups: Financial institutions will start contacting you through emails, messages, and phone calls to enquire into unpaid EMIs.

Also, read – 5 Consequences You May Face If You Are Defaulting on Personal Loan

How Personal Loan Default Affects Your CIBIL Score

Defaulting on a personal loan can significantly impact your CIBIL score. When you consistently fail to make payments, lenders report these delays to credit bureaus. This, in turn, lowers your credit score and signals higher credit risk.

A reduced CIBIL score can make it challenging to qualify for future loans or credit cards. Further, if you do get approved, you may face higher interest rates. Continued default may also lead to your loan being marked as a Non-Performing Asset (NPA), further damaging your credit profile.

Rebuilding your score after a default takes time, consistent repayments, and responsible credit behaviour.

Also, read – 5 Ways to Manage your Personal Loan EMI Payments

Check if You Have Personal Loan Insurance

Personal loan insurance is a policy that protects your loan payments in situations such as unemployment, disability or death. The policy’s purpose is to help safeguard you against personal loan default in case you’re unable to honour your EMI commitments.

Check whether your personal loan comes with insurance or protection cover, as it can significantly ease the burden during financial stress. If your policy is active, it may cover a few EMIs or repay a portion of the outstanding amount, helping you avoid penalties and safeguarding your credit score. Review your loan agreement or contact your lender to understand the coverage details, eligibility criteria, and claim process. Knowing your insurance benefits upfront can give you much-needed breathing room when your finances feel stretched.

When Should You Consider Personal Loan Settlement?

You should consider a personal loan settlement only when you’re genuinely unable to repay the outstanding amount despite exploring all other options. This step is generally taken in situations such as job loss, medical emergencies, or a sudden income drop that makes regular EMI payments unmanageable.

Loan settlement differs from loan closing because, in this case, the lender accepts a single payment that is less than the total outstanding amount owed. As a result, a settled loan has a negative effect on your credit score and should, hence, always be a last resort.

Before opting for settlement, it’s wise to speak with your lender about restructuring or extending your loan tenure. If repayment is no longer feasible and your financial situation is unlikely to improve soon, discussing a settlement with your lender may help you close the loan with reduced financial stress.

Also, read – What is an EMI Bounce Charge

Final thoughts

Avail personal loan online from Tata Capital – we offer personal credit or loan at attractive interest rates, flexible repayment terms, and relaxed personal loan eligibility criteria.

Not sure of the kind of EMI you will be liable to pay when you avail finance from us? Don’t fret! Simply log on to our website to use a personal loan EMI calculator to figure out your potential monthly instalment. To know more, get in touch with us today!

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FAQs

What happens if I miss a personal loan EMI?

If you miss a personal loan EMI, it can lead to penalty charges, an increased outstanding balance, a drop in your credit score, and lender follow-ups.

How does missing an EMI affect my CIBIL score?

Even a single missed EMI can lower your CIBIL score, as lenders report delays to credit bureaus. A reduced score can make future borrowing more challenging or expensive.

Can I request my lender to reduce my EMI amount?

Yes, you can request your lender to reduce your EMI amount. Lenders may offer options like extending your loan tenure or restructuring the repayment plan to make EMIs more manageable, depending on your financial situation.

What is personal loan restructuring?

Loan restructuring allows you to modify your repayment terms, such as extending tenure or adjusting EMI amounts. This can help ease financial pressure without defaulting on the loan.

When should I consider refinancing my personal loan?

Refinancing is worth considering when you find a lower interest rate, want to reduce your EMI burden, or need better repayment terms to suit your current financial capacity.

Does settling a personal loan affect future loan eligibility?

Yes, settling a personal loan affects future loan eligibility. While settlement can close the loan, it negatively impacts your credit report and may reduce your chances of getting new loans or favourable terms in the future.

What is credit protection insurance in personal loans?

Credit protection insurance is a policy that protects your loan payments in situations such as unemployment, disability or death. It can help safeguard against defaulting on your personal loan.

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