Sometimes, taking a loan to meet personal expenses becomes an unavoidable reality, especially when facing an emergency. Personal loans become a very helpful tool for individuals who have suffered job loss and are in the process of finding the next opportunity, but need to provide in the meantime. But, while it can save you in your struggles, paying it back on time, as per the loan schedule, is equally important. Nevertheless, life is not perfect, and it is possible for one to get tangled into a web where they are unable to pay personal loan EMI on time. When this happens, the failure to pay the EMI comes with significant consequences.
Whether you mean to cause financial institutions any harm or not, missing a payment of the personal loan EMI can bring serious legal repercussions. Even if a person is unable to pay personal loan emi due to job loss, the action comes with major financial as well as legal challenges. As such, not only is it necessary to take the loan carefully, but it is equally essential to ensure you make the EMI payments on time. Here, we will explore what happens if you are unable to pay the loan EMI.
What Happens When You Miss a Personal Loan EMI Payment?
The most prominent question people wonder about in terms of loan repayment is often ‘What happens if I am unable to pay a personal loan?’. Typically, what happens if you are unable to pay a personal loan in India is something as follows:
1. Levying Late Payment Charges
One of the consequences a person who is unable to pay personal loan emi will face is that they will be charged with a late payment fee. This can range from 1% to 3% of the amount that is overdue.
2. Dip In Credit Report
Your credit report plays an important role in determining your eligibility for all kinds of loans and other benefits.
3. Loan Default
Failure to pay personal loan emi can result in a loan default. This mostly happens when the borrower has missed repayment for several months. If a loan has been classified under this category, the lender can take legal action against the borrower.
How Does a Missed EMI Affect Your Credit Score?
In case you miss an EMI on your loan, it can affect your credit score in the following ways:
1. You will notice a dip in your credit score if you are unable to pay personal loan emi due to job loss or any other factor. This will also put you in the high-risk category in the credit report.
2. The credit score fall and high-risk categorization will make it difficult for you to secure loans in the future. You will potentially face more loan rejections for all kinds of loans
3. If by chance you are able to secure a loan, the history of missed payments (even one), will potentially push banks to offer you loans at higher interest rates, making it a challenge to repay those loans.
Legal Consequences of Not Paying Your Personal Loan EMI
Apart from impacting your credit score, missing loan EMIs can also trigger legal action. Some legal consequences you may face can include:
1. If the borrower is unable to pay personal loan EMI consecutively for three months, the lenders can initiate a loan recovery process.
2. The lenders can send the borrower legal notices about the loan default and request repayment within a stipulated time frame. Failure to pay the emi post notice can lead to court proceedings.
3. If the issue reaches court and the person is unable to pay personal loan emi due to job loss, the court can order seizing of the collateral (in case of a secured loan) or other recovery methods in case of unsecured loans.
What Are Your Options If You Can’t Pay Your EMI?
Now that it is clear what happens if you fail to pay EMI, it is important to know what your options are if you cannot pay the EMIs for some reason.
1. In case you are unable to pay the EMI, instead of avoiding it, inform the lender about the reasons at once. This will help you gain some support from the lender or work out an alternative plan for repayment.
2. Some banks can also help you by converting the due EMIs into a new loan, which will provide you with some time to start repaying. This helps prevent the loan from defaulting by increasing the tenure.
3. If you have not already, ask your friends and family for the due amount, pay it to the bank, and work out a repayment system with them instead.
Will a Missed EMI Affect Future Loan Applications?
Yes. A missed EMI will affect future loan applications. One answer to what happens if EMI is not paid on time is that it will become very challenging for you to secure a loan in the future. This involves loans of all kinds, whether personal, home, or others. Not only can you face rejections, but if any bank decides to approve the loan, the interest rate offered will be exceptionally unfavorable.
How to Avoid Missing EMIs in the Future
In order to avoid missing EMIs, and wondering ‘what happens if the online loan is not paid’, some practices you can follow include these:
1. Setup Automated Payment
Thanks to technology, it is possible to put in standing instructions on banking apps for auto-debiting. Use this feature to ensure you do not miss a payment deadline.
2. Control Spending
In case you are struggling financially and need to repay the loan, it is essential to watch expenses closely and cut down unnecessary spending. Create a budget for monthly spending to remain on track.
3. Borrow Limited Funds
Though an offered loan amount can be high, it is best not to borrow more than you need because interest will apply on the entire amount, which can be significantly high.
Conclusion
Personal loans can be the perfect tool for a person to overcome their financial challenges and make ends meet in times of emergency. However, they can quickly spiral into a giant debt if the payments for the EMIs are not made on time. Preventing this is essential for the sake of maintaining a positive credit score and preventing legal action. So, make sure you have ample resources to pay back the loan in time.
When you are looking for a reliable lender to help you with affordable personal loan options, Stashfin is a leading provider of instant personal loans. With Stashfin’s offers, you can get better returns than traditional FDs and even monthly payouts for consistent income.
Frequently Asked Questions
Can I still get a loan with a ₹10,000 monthly salary?
Whether or not a person is eligible for a loan depends on various factors. It is possible to get a loan with an INR 10000 per month salary as well, however, the interest rate in such cases may be significantly higher.
Does having a higher salary guarantee personal loan approval?
No. An individual making a high salary is not guaranteed to get personal loan approval if they have a lot of existing loans, their credit score is poor, or the stability of their job is questionable, among other factors.
Can I negotiate with my bank if I can’t pay my EMI?
In general, banks offer the option to negotiate some options such as an extension on the loan tenure, restructuring the EMI rates and period, and more. However, what structure the bank works out on is variable based on individual circumstances.