EMI bounce: Could you face jail time for failing to repay a personal loan EMI? Here is the RBI rule..
Nowadays, obtaining a personal loan through a mobile app or a bank takes just minutes, and the funds are credited to your account immediately. However, the real anxiety sets in if you lose your job, your business fails, or you face other unavoidable hardships. In such situations, EMIs may start bouncing. As the situation worsens, a common fear arises: will the police come to my house if I don't repay the loan? Will I have to go to jail? The clear and direct answer is no. Merely being unable to repay a loan is not a crime under the law. If your intentions were honest but you are unable to pay your EMI due to adverse circumstances, you cannot be sent to jail solely for that reason.
What does the bank do when an EMI is missed?
If you consistently fail to pay your EMI, the bank does not immediately take drastic measures. Initially, you are reminded to make the payment via calls and messages. Subsequently, legal notices are sent. If the payment remains outstanding for a prolonged period, the bank classifies your loan account as an 'NPA' (Non-Performing Asset). The most significant adverse impact is on your CIBIL score. A poor CIBIL score means you will face great difficulty in obtaining a new loan or credit card in the future. Following this, the bank may initiate legal proceedings to recover the dues through the courts. If you have pledged any collateral against the loan, action may be taken regarding that asset as well.
In which cases is there a risk of imprisonment?
As mentioned earlier, failing to pay an EMI due to genuine hardship is not a crime. The risk of imprisonment arises only in cases of fraud. For instance, if someone obtained a loan using forged documents, lied to the bank about their employment or income, or deliberately absconded with the money. In such instances, the bank can directly approach the police to file an FIR, leading to a criminal case. In other words, deliberately defrauding the bank and being unable to repay the loan due to unavoidable circumstances are two completely different things.
How can you deal with threats from recovery agents?
Borrowers who default on loans often fear recovery agents the most. However, Reserve Bank (RBI) guidelines empower the common person in this regard. While recovery agents may call you or visit your home or office to collect dues, they have absolutely no right to be rude, use abusive language, or threaten you. They cannot harass you by calling at odd hours or in the middle of the night. If an agent crosses the line or attempts to humiliate you, you should not hesitate to lodge a complaint with the police or the RBI. The law fully supports you in such matters.
What should you do if you face financial difficulties?
People often stop answering calls from the bank out of fear. This is a major mistake; doing so only exacerbates the problem instead of resolving it. If you feel that paying your EMI is no longer within your means, visit the bank directly and openly explain your situation to the officials. Banks often assist in such cases. If necessary, they may reduce your EMI, extend the loan repayment tenure, or grant a grace period (moratorium) of a few months. Sometimes, a 'One-Time Settlement' option can also be worked out, permanently resolving legal hassles and relieving your mental stress.
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