Missing Personal Loan EMIs Can Turn Your Debt into NPA: Here’s How It Impacts Your Finances and Future
Personal loans have become a financial lifeline for millions of people in India. With banks and NBFCs making credit easily accessible, the demand for personal loans has seen a significant surge over the last decade. However, many borrowers are unaware of the severe consequences of not repaying EMIs on time. One of the biggest risks is that your loan account could be classified as a Non-Performing Asset (NPA), which can damage your financial health and future borrowing capacity.
What Happens When You Miss Personal Loan EMIs?
According to RBI regulations, if a borrower fails to pay the due EMIs for 90 consecutive days (three months), the loan account is tagged as an NPA. For non-banking financial companies (NBFCs), the time frame can extend to 120 days. Once declared an NPA, the loan is considered a “stressed asset,” meaning the bank is no longer earning interest on it and faces recovery risks.
Before a loan turns into an NPA, banks usually categorize it under a Special Mention Account (SMA). This is a warning stage indicating that the borrower has begun showing early signs of default.
Types of NPAs in Personal Loans
Not all NPAs are treated equally. Once your loan slips into this category, banks further classify them into three types:
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Substandard Assets: Loans that remain in NPA status for less than or up to 12 months.
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Doubtful Assets: Loans where repayment has been overdue for more than 12 months, with little chance of recovery.
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Loss Assets: Loans that have been non-performing for more than a year and are considered unrecoverable by the bank.
These classifications help banks determine the extent of provisioning and recovery actions needed.
The Alarming Rise of NPAs in India
Over the last decade, India has witnessed a sharp increase in NPAs, particularly in public sector banks. As per RBI data, more than 85% of the total bad loans between 2011 and 2020 belonged to government banks.
For example, in 2011, NPAs from state-run banks stood at ₹74,600 crore. By 2018, this figure had surged to over ₹8.95 lakh crore before gradually reducing to ₹6.78 lakh crore in 2020. In comparison, NPAs from private and foreign banks remained significantly lower, though not negligible.
This trend underlines how widespread loan defaults have strained India’s banking sector, highlighting the importance of timely repayment for both lenders and borrowers.
How NPA Affects Borrowers Directly
Missing personal loan EMIs does more than just invite penalties—it can affect your financial future in several ways:
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Credit Score Damage: Late payments or defaults are reported to credit bureaus, leading to a poor credit score. This can severely impact your eligibility for future loans, credit cards, or even home and car loans.
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Penalty and Extra Charges: Banks levy fines and additional interest on overdue payments, increasing the overall loan burden.
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Legal Consequences: If the loan remains unpaid, lenders can initiate legal proceedings, which may include court orders and attachment of personal assets.
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Loss of Future Opportunities: With a poor credit history, negotiating favorable loan terms like lower interest rates or higher limits becomes nearly impossible.
Why Timely Repayment Matters
Paying EMIs on or before the due date is the most crucial factor in maintaining a healthy financial profile. Even a slight delay can push your account into SMA status, and repeated delays risk an NPA tag. Financial experts recommend setting up auto-debit facilities, maintaining a repayment buffer in your account, and prioritizing loan EMIs over discretionary expenses to avoid defaults.
Final Word
A personal loan can be a great financial tool when managed wisely. But once it slips into the NPA category, it not only hurts your creditworthiness but also exposes you to financial and legal troubles. Borrowers should treat EMI repayments as non-negotiable and adopt disciplined financial habits to safeguard their future.
