Between 2015 and 2018, unsecured loans have witnessed a growth of approximately 4 times bank credit. The spurt in people opting for personal loans is attributed to various reasons like technology-based disbursements, lower interest rates, quicker disbursements etc. Although availing quick personal loans may be beneficial in most situations, the ease of availing loans accompanied by other unforeseen events in life that may cause you to miss a personal loan EMI.
Who is a Loan Defaulter?
Failure on the part of the borrower to honor several EMIs in a timely fashion and further inability to make payment during the grace period or pay late fees earns the title of a loan defaulter.
Must Read: How to Apply for a Personal Loan Online - Step by Step Process
Missed loans are classified into 2 main categories by most major lenders:
- Major Defaults
Not honoring your loan EMI for more than 90 days is considered a major default and can severely affect your financial health. This can affect your ability to access funds in the form of loans in the future.
- Minor Defaults
Failure on the part of the borrower to honor the EMIs for less than 90 days is referred to as a minor default.
What happens if Personal Loan EMI is Missed?
- Affects credit score and ability to obtain finance
The credit score is an important factor for all lenders while evaluating a potential borrower. Lenders refer to the credit report and score generated by credit rating agencies and this plays a determining role in whether a candidate’s application is to be accepted or rejected. Most lenders consider a score of above 750 healthy which helps in availing loans at attractive rates of interest. Missing your EMI payment can lead to a setback in your credit score affecting your ability to obtain credit in the future.
- Increase in the amount payable
Delay in payment of EMIs attracts additional interest at the rate of 2% per month, thereby increasing the total amount payable.
- Legal Action
Sometimes, lending institutions might initiate legal proceedings to recover the money. However, since personal loans are unsecured, lenders will try recovering the amount by having discussions with the defaulter. In case of minor defaults - such as a missed payment due to a genuine issue, it is recommended for borrowers to discuss the issue with their lenders as soon as possible so that there is no major impact in terms of extra charges or credit score.
Must Read: 5 Simple Ways to Repay Your Personal Loan Quickly
How Can I Avoid Defaulting on my EMI Payments?
On borrowing a loan attempts should be made to avoid defaulting on payments, however, in unfortunate situations that might cause you to default on your payments, these are the different options that you can consider:
- Plan your finances in advance
A personal loan EMI calculator is an online tool that can help you arrive at an estimate of how much you can borrow taking into consideration multiple factors. This, in turn, can help plan your monthly EMIs at the outset ensuring that your loan repayments do not hinder your living expenses.
- Communicate with your lender
If, due to any reason you foresee inability to repay the loan amount or even a part of the loan payment, it is in your interest that you communicate to the lender about your economic situation. These are the various options you can consider in this situation:
- In the unfortunate situation that you are laid off or your business comes to a temporary halt, you can request your lender to provide you with a brief waiver until the situation improves. For instance, during the economic fallout due to the COVID-19 pandemic and subsequent lockdowns, the RBI had directed all lenders to provide a 3-month moratorium facility, which later got extended to another 3 months. Post Sep, 2020; the RBI also allowed a one-time restructuring of loans, which enabled borrowers affected by the economic crisis to get some relief in terms of EMI amount reduction or in some cases, an extended moratorium.
- You could request your lender to allow you to make part payments which can help in reducing the EMI and the interest payable every month.
- Manage your budget and cut expenses so that you can use the funds towards loan repayment.
Opt for a Personal Loan Balance Transfer
If you are considering refinancing your loan to avail a better deal on your loan, Fullerton offers a variety of loan products to suit your requirements. You can be assured of a practical solution that meets your requirements.
If you happen to miss a personal loan EMI, don’t be disheartened. Opt for the most suitable solution and stay focused on your goal of building a strong financial background in the long run!