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 loan default can easily land you in a financial fix.
So, what happens when you default on loan repayments? Here are the five major consequences you should know.
Higher debt burden
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.
Additional Read: Tips To Avail Lowest Interest Rates On Your Personal Loan
Dip in credit score
Lenders provide regular updates to credit bureaus about your repayment behaviour. And credit bureaus usually take this information into account and update your CIBIL score. So,defaulting on personal loan repayments can hurt your credit score if you are careless about it. 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.
If you didn’t know, defaulting on loan repayments for over 180 days makes you liable for 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.
Difficulty in securing new loans
Apersonal loan EMI defaultis recorded in your credit report. And 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 in personal relationships
As discussed, defaulting on personal loan repaymentsimpacts 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.
Additional Read: 5 Simple Ways To Manage Your Personal Loan EMIs
It’s evident that not paying loan EMIs on time has severe consequences. Hence, you must take your time and choose a lender offering a repayment plan you can afford comfortably.
At Tata Capital, we offer tailored loan plans in addition to attractive loan interest rates. Need help choosing the right loan plan? Use our personal loan EMI calculator to check the EMIs payable for our plans and select one you can afford without hassles.