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5 Consequences You May Face If You Are Defaulting on Personal Loan

5 Consequences You May Face If You Are Defaulting on Personal Loan

If you fail to repay the personal loan interest rates or principal amount according to the conditions, you can default on your loan. It could be because you missed an EMI due date or a sudden cash crunch. However, such a personal loan defaulter situation can easily land you in a financial fix.

So, what happens if you default on a personal loan? Here are the five major consequences you should know.

What is a personal loan default?

So, what is personal loan default? It happens when a borrower misses their loan EMIs for a significant period, usually 90 days or more, and the lender classifies the account as non-performing.

The personal loan defaulter meaning refers to someone whose loan repayment has fallen behind and whose default is reported to credit bureaus like CIBIL, Experian, or Equifax. This can affect your credit score and make it harder to get loans in the future.

In simple terms, the loan default definition is the failure to meet repayment obligations on any loan. Defaults may lead to personal loan defaulter legal action, penalties, legal action, or higher interest rates, which is why staying on top of your EMIs is so important.

Also, read – Steps to take if you can’t Pay Your Personal Loan

5 consequences you may face if you are defaulting on personal Loan

A loan defaulter in India can trigger a series of financial and legal challenges. Let’s take a look at them:

Increased debt burden: Penalties and charges

When you default on your loan EMI payments, the first consequence you will have to face is a higher loan burden. The reason? EMIs make loan repayments affordable for borrowers through regular monthly payments. So, when you don’t pay the EMIs on time, the total payable amount increases for the remaining duration of the tenure. Besides, the late payment penalties get added to it too. This increases the total liabilities, making it harder to clear the debt.

Also, Read: Get Urgent Loan for CIBIL Defaulters

Negative impact on your credit score (CIBIL)

Lenders provide regular updates to credit bureaus about your repayment behaviour. Credit bureaus usually take this information into account and update your CIBIL score. Being a loan defaulter in India can significantly reduce your score, making it harder to access future loans. In fact, every EMI default decreases the credit score by 50-70 points. Naturally, if you continually default on loan repayments, it will cause irreversible damage to your credit scores, making it harder to build them up.

Personal loan defaulter legal action in India

If you didn’t know, defaulting on loan repayments for over 180 days makes you liable for personal loan defaulter legal action. This means lenders can file a case against you under section 138  of the Negotiable Instruments Act 1881. What’s more, if the lender finds you to be a wilful defaulter (someone who skips repayments on purpose), they can press criminal charges under sections 403 and 415 of the IPC (Indian Penal Code), 1860.

Also, read – How To Improve CIBIL Score After A Payment Default?

Difficulty securing future loans and credit

A personal loan defaulter record is reported to credit bureaus. If left uncleared for over 180 days, lenders report your credit status as ‘Written-off’ to credit bureaus. This negative status is a clear indication that you have a history of defaulting on loan payments to prospective lenders. Naturally, securing a loan with this negative status is difficult.

Strain on personal relationships

As discussed, defaulting on personal loan repayments impacts your credit scores, increases your debt burden, and makes securing new credit difficult. So, you have limited options to repay your dues, and you will have to rely on financial help from friends and family to repay them. This will put an added strain on your relationships.

Also, Read: 5 Simple Ways To Manage Your Personal Loan EMIs

What if you default on a personal loan? Understanding the timeline

Many borrowers ask, what happens if you default on a personal loan? In this case, some lenders follow a specific timeline. Understanding this personal loan default timeline can help you take timely steps to minimize the impact on your finances and credit score.

When an EMI is missed, the lender typically sends reminders and may charge a small late fee. If repayments continue to be delayed, additional penal interest is applied, and repeated notices are sent. Once the account remains unpaid for around 90 days[1] , it may be classified as a non-performing asset (NPA) and reported to credit bureaus such as CIBIL. This is the point at which the borrower becomes a personal loan defaulter.

The loan defaulter process does not stop there. Continued non-payment can lead to personal loan defaulter legal action such as legal notices, recovery actions, and increased difficulty in obtaining future loans or credit. Being aware of this process allows borrowers to take corrective measures early, such as restructuring the loan, negotiating repayment plans, or seeking professional credit counselling, to reduce long-term consequences.

Also, read – How to Check the CIBIL Defaulter List

How to avoid personal loan defaulter status and legal action

If you’re wondering how to avoid loan default, the key is to stay proactive and manage your EMIs carefully. Missing payments can quickly escalate into a default, affecting your credit score and financial reputation.

Here are some practical steps to prevent personal loan defaulter status and ensure personal loan legal action prevention:

  • Prioritise EMI payments: Review your monthly budget and make sure EMIs are always accounted for first.
  • Communicate with your lender: If you anticipate difficulties, reach out early. Most lenders offer options like restructuring your loan or temporarily reducing EMI amounts.
  • Set up automated payments: This ensures you never miss a due date and avoids accidental defaults.
  • Consider balance transfers or consolidation: Transferring your loan to a lender offering lower interest rates or consolidating multiple debts can make repayment easier.
  • Seek professional guidance: Certified credit counsellors can provide personalised strategies to manage repayments and prevent defaults.

By following these steps, you can avoid becoming a personal loan defaulter, protect your credit score, avoid penalties, and stay clear of personal loan defaulter legal action.

Also, read – Steps to Clear Overdue Payments with a Personal loan

Conclusion: Avoiding personal loan default

It’s evident that not paying loan EMIs on time has severe consequences. To avoid becoming a personal loan defaulter, choose a repayment plan you can comfortably afford.

At Tata Capital, we offer tailored loan plans in addition to attractive personal loan interest rates. Need help choosing the right loan plan? Use our personal loan EMI calculator to check the personal loan EMIs payable for our plans and select one you can afford without hassles.

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FAQs

What kind of legal action can a lender take against a personal loan defaulter?

Lenders can initiate personal loan defaulter legal action through notices, recovery proceedings, or court cases to recover overdue amounts.

How does personal loan default affect my credit score (CIBIL)?

Being a loan defaulter in India lowers your credit score, making it harder to get new loans or credit cards in the future.

What if you default on a personal loan but face genuine financial hardship?

If you default on a personal loan, contact your lender immediately. They may offer restructuring, EMI reduction, or tenure extension to manage repayments.

Can a bank contact my employer about my personal loan default?

Yes, banks may reach out for verification or recovery, especially if you default on a personal loan. Formal legal action requires notice or court involvement.

What are the rights of a loan defaulter in India?

A personal loan defaulter has the right to fair notice, dispute resolution, and negotiation with the lender before any legal or recovery action.

How can I prevent myself from becoming a personal loan defaulter?

To avoid being a personal loan defaulter, pay EMIs on time, communicate with your lender proactively, set auto-debits or reminders, and seek financial guidance when needed.

 

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