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Tata Capital > Blog > Personal Use Loan > What Happens if a Personal Loan EMI is Missed?

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What Happens if a Personal Loan EMI is Missed?

What Happens if a Personal Loan EMI is Missed?

A personal loan is an ideal choice of funding for borrowers who don’t want to pledge any asset as collateral with the lender. However, such loans come at the cost of relatively higher interest rates. When you apply for personal loan, you must ensure that you’d be able to manage the monthly EMI responsibly without defaulting. 

A personal loan EMI calculator available online lets you calculate the EMI amount you will have to pay each month against the principal for a specified loan tenure. You only have to enter the principal amount, loan tenure and the personal loan interest rate. You can then plan your EMIs conveniently to repay the loan.

This article explores EMI options for personal loans, what happens if EMI is not paid on time, and what steps you can take when you default on EMI payments.

Some EMI options available for personal loans include the following:

1. Standard EMI

This is the most common option wherein you can repay your loan amount inclusive of interest every month. In a standard EMI, the rate of interest is charged on the principal.

2. Flexi Interest-Only Loan EMI

This EMI option comes with a pre-approved cash limit that you can withdraw when you need funds. The interest is only charged on the amount you have used instead of the total principal amount.

3. Step-Up Flexi Loan EMI

This option offers maximum flexibility; you can pay lower EMIs in the beginning and gradually pay more as your income increases over time.

Also, read – Consequences Of Missing Home Loan EMIs

What happens if EMI is not paid on time?

There could be times when you miss out on an EMI payment. This could be for a variety of reasons, ranging from lack of funds to simply forgetting to pay an instalment. Defaulting on an EMI could be telling.

Here is what happens if EMI is not paid on time.

1. CIBIL Score:

CIBIL score is one of the most significant determinants of personal loan eligibility. A score of above 750 is considered ideal for demonstrating a good credit history. Even a single instance of defaulting on EMI payments can drag your CIBIL score down by about 50 to 70 points. 

2. Creditworthiness:

Any instance of missing out on personal loan EMI payments lends a bad impression on your repayment history. Despite having a CIBIL score of above 750, lending institutions reject loan applications based on such negative instances on a credit report. Lenders label such individuals as ‘risky’ borrowers. 

3. Penalties and Late Fees on Missed EMIs:

Lending institutions often charge a late fee and penalty for late payment of EMI from those who miss EMIs. Generally, this varies between 1-2% of the due amount. 

4. Recovery Process After Missed EMI:

Sometimes, lending institutions deploy recovery agents once the period of default has extended beyond three months. In such situations, lenders typically issue a notice of sixty days to the borrower before labeling the loan as NPA.

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

Loan Restructuring Options for Missed EMIs

Now that you know about what happens if EMI is missed, let’s move on to loan restructuring, one of the ways to deal with missed EMIs.

Loan restructuring allows you to change the terms of the initial loan agreement to ease your financial burden. This can involve extending the repayment tenure or reducing interest rates.

Some common loan restructuring options you can consider include:

  • EMI Restructuring: Your lender may reduce your monthly EMI by increasing the repayment period or adjusting the interest calculation.
  • Moratorium Period: You get a temporary pause on EMI payments, giving you time to stabilise your finances. Interest may continue to accrue during this period.
  • One-Time Settlement: You pay a negotiated lump sum that is lower than the total outstanding amount. Although this closes the loan, it can also impact your credit score.

Also, read – Overdue Payment: What It Is and How It Impacts Your Finances

Legal Implications of Defaulting on Personal Loan EMIs

Legally, here is what happens if EMI is not paid on time:

  • If you don’t repay the EMI even after repeated reminders, lenders have the right to approach a civil court to recover the outstanding amount.
  • When you fail to repay for an extended period, the loan may be categorised as a Non-Performing Asset (NPA). At this stage, lenders can engage RBI-authorised recovery agents to collect the dues.
  • You may be booked for cheating under Section 420 of the Indian Penal Code.
  • Lenders can also take possession of the mortgaged property under the SARFAESI ACT, 2002.
  • If any post-dated cheque you issued bounces, the lender can initiate criminal proceedings under Section 138 of the Negotiable Instruments Act.

Also, read – What is an EMI Bounce Charge and Why Does it Matter?

Steps to Take Immediately After Missing a Personal Loan EMI

In case you’ve missed an EMI, here are the immediate measures you should take:

1. Reach out to your lender: Let your lender know about the delay. If you have a valid reason and a good repayment history, they may relax or reduce the penalty for late payment of EMI.

2. Consider revising the loan terms: If monthly payments are becoming difficult, speak to your lender about restructuring options. Many lenders offer extended tenures or modified plans for borrowers facing financial stress.

3. Use your savings: If you have an emergency fund or fixed deposits, you can use them to clear the overdue EMI. It’s better than risking long-term damage to your credit profile.

4. Request for an EMI-free period: If you have no source of income for a while, you can ask the lender for a break from EMIs. Lenders usually allow a 3–6-month pause in case of job loss or business slow down.

Also, read – Impact of Late Payment on CIBIL Score

Conclusion

It is recommended that you plan your finances efficiently to avoid any chances of defaulting. If you anticipate the possibility of missing an EMI, you must approach your lender and discuss your financial circumstances to find the most viable solution. Your lender might agree to reduce the EMI by either extending the loan tenure or converting the unsecured loan to a secured one.

Make Tata Capital your finance coach so that you never have to worry about missing an EMI again!

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FAQs

What happens if personal loan EMI is missed?

If you miss your personal loan EMI payments, your credit score can go down by 50-70 points. Lenders may also charge penalty for late payment of EMI and mark you as a high-risk borrower. And if the delay continues, your default may be classified as NPA, and lenders might send recovery agents to recover the loan amount.

How does a missed EMI affect my credit score?

Even a single missed EMI can lower your credit score by 50-70 points. Since your credit score is one of the most important factors lenders consider during the loan approval process, a low credit score can reduce your chances of getting future credit.

Can I avoid penalties if I pay the EMI late?

You usually can’t avoid penalty for late payments of EMI. However, some lenders offer a short grace period, generally 1 to 15 days, during which you can pay the EMI without any extra charges.

What happens if EMI is missed repeatedly?

If you keep missing EMIs, your credit score will keep dropping, lenders may increase penalties, and you may lose eligibility for future loans. Additionally, long-term defaults can also push your loan into NPA status, after which recovery agents may get involved.

Can my loan be restructured if I miss my EMI?

Yes, your loan can be restructured if you miss EMIs. It usually depends on your situation. The lender may allow a longer repayment tenure, offer a temporary moratorium, or, in some cases, negotiate a one-time settlement that is lower than the outstanding balance.

 

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