If you miss 1 or 2 personal loan EMI payments, it might not be an enormous deal, yet, it can put a couple of effects on your credit health. If you cannot make your loan EMI payment, your financial institution takes you into account as a defaulter.
Therefore, in this post, you will get to know to understand each and every aspect when missing on personal loan EMI. Let’s plunge into the post ahead!
Types of loan defaults
There are 2 kinds of loan defaults that financial institutions such as banks, NBFCs, and instant personal loan apps classify, and you would possibly fall under any of those if you do not work on aspects to avoid them. Let’s take a look at them:
- Minor defaults
These are minor payment defaults, where you do not surpass 90 days post missing personal loan EMI payment. It means you build the EMI payment within 90 days post your scheduled date. Minor defaults can still affect your credit score.
- Major defaults
When you exceed 90 days post missing your personal loan EMI payment. It refers that you’ve not made payment even in over 90 days, and therefore the financial institution accounts you as a crucial defaulter.
The loss of falling into this segment is that financial institutions prevent granting loans to individuals with top payment defaults in their credit reports.
Consequences of missing personal loan EMI payments
Here are some of the results that can take place once you default on personal loan EMI payments:
- Late fees and additional charges
If you default on your personal loan EMI payment then the additional charges or late fees may be levied on you by your lender alongside the EMI payment. Generally, the late fee penalty ranges between 1% and 2% of the due EMI amount.
- Mitigated future borrowing capability
The lending institution assesses your credit report and credit score prior to extending with a personal loan to you.
Even though, defaulting on your loan EMI payment will build a wrong reputation on the lender, who will then be hesitant to extend the loan to you, which lowers your potential borrowing capacity.
- Recovery agents
If you do not pay your personal loan EMI even after 90 days post the scheduled maturity, the last alternative for the lender is to send agents to recover your loan amount.
Typically, the bank issues a 60-days prior notice to the borrower prior to announcing the loan account as an NPA (Non-Performing Asset).
- Low credit score
Your credit score determines your loan eligibility. Thus, the primary consequence of defaulting on your EMI payment will be a decrease in your credit score.
The majority of the lending institutions ask for a credit score of 750 or more for borrowers to apply for an instant personal loan. So, just in the event, you miss one among your personal loan EMI payments, your credit score can fall down by 50 to 70 points.
- Low creditworthiness
All the knowledge associated with your debt repayments remains mentioned inside your credit report, which may depict your repayment history.
Thereby, even if you possess a credit score above 750, you can have low repayment capability thanks to the comments about your payment defaults in your credit report. Thus, the negative remarks in your credit report might lead to loan non-approval.
Ways to avoid loan defaults
Of course, who does not want to get rid of or stay away from loan default! However, the longer-term is uncertain, and situations can arise where you can’t make personal loan EMI payments timely.
To get rid of these, here are a number of methods that you can consider prior to applying for a personal loan. Take a look at them:
- Request to making part payments
You can demand your lender to permit you to make part payments, which goes to scale back the EMI and the interest payable by you each month.
- Request for EMI-free period
Usually, lending institutions offer EMI-free periods to borrowers who have lost their jobs or aren’t running their business operations temporarily. You can avail of 3 months’ to 6 months’ waiver on your EMI payment by your lending institution.
- Plan your finances in advance
To get rid of defaulting on your personal loan EMI, it is a good notion to plan your finances beforehand. You can take the help of a personal loan EMI calculator so as to calculate multiple figures like the rate of interest and opt for an EMI plan before applying for a personal loan.
You can find such calculators on the websites or apps of lending institutions such as EarlySalary instant personal loan app, Afinoz instant personal loan app, etc.
- Request for lower EMI
If you think you cannot be ready to make the EMI payment on the scheduled date, you can communicate with the lending institution about your financial situation and request them to lower your EMI.
Generally, the lending institutions lower the EMIs by extending the tenure of your loan repayment or by converting the unsecured personal loan to a secured loan.
The Upshot
We hope you found this 360-degree guide on missing out on personal loan EMIs, right from the consequences of defaulting on the EMI payment to the ways that can help stop or prevent them.
It’s crucial to structure your finances in advance for the purpose of avoiding the default on your EMI payment. With the simple availability of quick personal loans, you can assess your financial constancy then apply for a personal loan.
