In today’s digital era, it has become very easy to take personal loans. If you complete all the criteria, the loan amount in a pinch is transferred to your account. But the personal loan also comes with a huge responsibility and that is to repay it on time. A loan taken without planning or not filling EMI on time can put you in a big trouble. This not only spoils your credit score, but can also face legal action from the bank or NBFCS.
You can take a loan of up to Rs 50 lakh with 100% paperless process on the Moneycontrol app and website. The interest rate here starts from 10.5% per year.
What is a personal loan default?
When a person taking a personal loan is not able to fill his EMI on time, he is considered a personal loan default. The reasons can be different-such as missing jobs, sudden medical expenses, a big accident or poor financial planning. This default not only increases stress, but also causes difficulty in taking new loans further.
However, new methods of repayment can be drawn by interacting with lender. But trying to avoid completely can harm a lot.
Possible results of loan default
- Impact on credit score
Every time your credit score falls down when EMI is missed or late filling. Lander sends information about your repayment to the credit bureau, which update your score. Due to a delay of 30 days, your score can fall from 50 to 100 points. Repeated default makes it difficult to fix the score.
- Increased debt
If the EMI is not filled on time, then the burden of the entire loan increases. EMI gives you a chance to repay the loan in small parts, but you may have to pay more money in the rest of the period due to a delay of one or more months. From above, banks also add late fees, higher interest rates and fine.
- Collection pressure
If you do not fill EMI continuously, then the lender recovery process. It can include calls, messages, emails and letters. Many times the case is also assigned to the third party collection agency, which continues to chase to collect money.
- Legal action can be taken
If you do not pay a loan for more than 180 days, then the lender can file a case against you under section 138 of the negotiable instruments Act, 1881. If the lender feels that you are not deliberately paying, then a criminal case can also run against you.
- Difficult to get new loans
The lower your credit score, the less the chances of getting a loan will be reduced. Loan -giving institutions first see repayment history. EMI default can stop your loan approval in the future.
- Effect on relationships too
When the financial pressure increases after the loan default, many times you may have to take help from friends and family. This can also cause stress on your personal relationships.
What to do in financial difficulty?
If you are in financial difficulty, first talk to the lender. Find the option of settlement or re-structure. If your credit score is low and you want a loan in the future, then a loan can be taken with the help of a secured loan or a guarantor. But it is necessary to repay them on time so that your credit profile can be strengthened again.
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conclusion
Personal loan default can affect not only your financial condition, but also your future goals and relationships. But it can be avoided by taking steps wisely and in time.
Summary
Personal loan default not only affects the credit score, but can also cause legal trouble. Know how to manage EMI and how to avoid these risks.
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Disclaimer
This fraction/article is written by an external partner and does not reflect the work of the editorial team of Moneycontrol. This may include references to products and services offered by Moneycontrol.