Whenever you need funds to meet any financial liability, a personal loan always comes to your help. The loan is easy to avail, is offered at the earliest and also does not require any collateral security to be pledged. Though you can avail the loan easily, lenders expect you to repay the loan duly over the repayment tenure.
But what if you miss the EMI payment?
Missing the EMI payment of the personal loan would result in a payment default. This default has various negative repercussions for you and your finances. Let’s find out what these repercussions are –
• Payment of default charges
Personal loans have high interest rates which you have to pay along with the principal loan amount through EMIs. If there is a default, you are also charged a default fee in addition to the high interest rate. The default fee is also considerable and when added to the personal loan interest rate it results in high additional charges on the loan which eats into your finances.
• Hampering of credit score
Your credit score primarily depends on the repayment history of the loans that you avail. If there is a default on personal loan, it ruins your repayment history. This history then affects your overall credit score and hampers it too. In fact, since personal loans are unsecured loans, any default in the payment of the loan would damage the credit score severely and it takes a while for you to rebuild your credit score from such damage.
• Inability to avail future loans
Once you are categorised as a defaulter on your personal loan, your credit score would deteriorate and it would be difficult for you to avail a loan in future. Future lenders would be wary of allowing you any type of loan since the default history would be featured in your credit report for quite a few years.
• Susceptible to legal action
If you miss more than three EMI repayments, the lender might take a formal legal action against you to recover the loan. You would be sent a notice from the lender stating that the post-dated cheques which you deposited for availing the loan would be presented to your bank for payment. If the cheques are dishonoured, you would face legal action because dishonour of cheques is a legal offence.
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So, these are the primary repercussions of defaulting on your personal loan. To avoid these repercussions always pay your loan installments on time. To do that, take the following steps –
- Calculate the EMIs of the loan before you avail the loan to judge whether you would be able to comfortably pay them off
- If you face a financial crisis, talk to the lender and renegotiate the repayment tenure
- Always pay off the loan installments first after getting your income
- Try and repay the loan as fast as possible to avoid future defaults due to any financial crisis.
Defaulting on your personal loan is a serious dilemma and you should try and avoid it at all costs if you don’t want to face the negative impacts of such defaults.