Loan Default Rules: The Bank will declare you a defaulter if EMI is not paid, loan takers must know this..
When you take a loan from someone, you automatically enter into a legal contract to repay the loan as agreed. Even if you intend to repay the loan, it is also possible that you may not be able to repay it on time. You get caught up in your daily activities and may forget to make loan repayments. You may miss more repayments one after the other. Before you know it, you are labeled as a personal loan defaulter. So what happens when you miss the installment once or twice? It is important to know how personal loan default affects you and your credit history.
Who is a loan defaulter?
Of course, if on one date you have forgotten to pay, this will not make you a defaulter. But if you do not pay several EMIs back to back, the lender may report you as a defaulter. Some of them also give you some time to make the payment. However, they also charge you a certain amount as a late fee. This gives you a chance to improve your credit status.
Your credit score will be affected
All banks and NBFCs are expected to report non-payment to credit bureaus like CIBIL and Equifax. Once reported, it will severely reduce your CIBIL score and make it difficult for you to get any kind of credit/loan in the future.
Your co-signer will be affected
If you are a co-signer or guarantor on a personal loan, non-payment on time will also impact your credit score. Additionally, they will continue to receive calls from lenders and recovery agents in attempts to recover the loan amount.
Your financial worries will increase
Expenses like late fees, penalties, legal costs, etc get added to the unsettled loan balance, making the amount paid much higher than the loan you took.
Bank or NBFC can take legal action
If the institution fails to recover the payment it is due from you, it may decide to proceed legally to recover the money.
If you have not been able to make several payments on time, below are some steps to deal with the situation-
Talk to the loan provider
There is nothing that cannot be solved with simple conversation. Contact your lending institution and explain the reason for the default. They may also be able to find a solution that benefits both of you. You can request the lender to give you more time to make repayment. If nothing works, you can request a settlement from the bank.
Look for ways to increase your income or cut expenses
Explore some short-term jobs or freelance projects to earn more money. If that's not an option, consider planning and cutting your monthly expenses.
Know your rights as a defaulter
Banks and other financial institutions are governed by the Reserve Bank of India (RBI). They are dedicated to best practices as part of their code of commitment to their customers. Because of this, as per law, the bank or the recovery agents selected by the banks cannot threaten or harass you.
A personal loan is an unsecured loan and it is given to you keeping in mind your repayment capacity. Therefore, it is your responsibility to repay the loan as agreed. Failure to do so can have negative consequences for your credit health and financial life.
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