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.

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.

What happens if personal loan EMI is missed

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 are a few things to note.

1. CIBIL Score:

Cibil Score for Personal Loan

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. 

Additional Read: Tips to Improve Personal Loan Credit Score

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:

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

4. Recovery Agents:

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.

Additional Read: 5 Ways to Manage your Personal Loan EMI Payments

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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