What Will Happen if You Default Your Personal Loan EMI payment

Personal loans are an unsecured kind of debt that is freely accessible to financial organizations, both offline and online. They are best suitable for emergency situations. There is no limit on the usage of the personal loan amount. Failure to make a scheduled payment could have effects. If you fail to pay the unpaid debts, you would be considered a defaulter within the due period. Each lender has its terms and conditions when it comes to non-payment of personal loans. See also our recommendations about Important factors considered by banks in the personal loan applicationFactors to look before applying for a loan, personal loan apps.

What is Default and Who exactly is a Defaulter?

If you fail to pay the EMIs on time, you are called a defaulter. However, certain credit companies offer a grace period that begins following the due date; if you miss a payment in that time period, you may continue to pay the late payment charge, so you will be saved from the defaulter’s title. For the grace period, various lenders have different durations and conditions. Missing one payment may not make your default. Yet if you miss a few other EMIs, the lender must report the default.

There are two types of defaulters:

The first is a genuine defaulter.  One who usually pays his / her EMI on time but refuses to pay due to unexpected reasons, such as medical problems or work loss, is a real defaulter. In these situations, the applicant can recognize the validity of the case and offer an extended grace period.

The second type of defaulter is the less responsible type; such defaulters will have the payment money but may miss the payment date due to simple ignorance.

What happens when you of default on your personal loan?

Here are some of the consequences of defaulting on your personal loan EMI payment:

Credit report and credit score

All the financial transactions related to the loans are reported in your credit report. Transaction details, such as the date and amount of the EMIs, are provided in the payment report that lets CIBIL decide about the credit score.

Each of your late payments or non-payments are reported to CIBIL by your lender. These factors are damaging to your credit score. Missing even one payment could reduce your credit score. With bad credit records, it is exceedingly difficult to obtain loans in the future. See also how to improve your cibil score

Late fees and extra charges

Late payment or non-payment of the EMI can be exposed to additional fees and charges from the lender. For eg, whether you make a payment to your EMI after the due date or during the grace period, you would have to pay the “late payment” fee. When you miss payment any longer and are a defaulter, you can be charged extra for the unpaid amount.

Lowers future borrowing capacity

When applying for a loan, the lender must carefully check your credit history and score and get an understanding of your financial stability and determine the risk involved in providing the loan and you. A low credit score makes lenders hesitate to lend you money. Even if they want to make an exception, they ‘re likely to lend you a smaller amount than you’ve applied for and will give you a higher interest rate.

Loss of collateral/asset

Although personal loans are not secured, in some situations the lender may seek collateral for these loans. By defaulting on guaranteed loans, you will lose the property or the protection you have guaranteed. In certain situations, the loan application will require the identity of the guarantor, so defaulting on the payment would, therefore, put the guarantor in trouble.

Legal implications

Defaulting on unsecured loans does not necessarily put you behind bars, but a civil suit is definitely a possibility. After several attempts to recover the amount of the loan, the lender can use the legal route to get his / her money back.

This is how you can avoid defaulting by streamlining your loans: :

If you are worried that your EMI payment can be foreclosed in case of emergency situations, you need to learn about the measures you may take to escape a messy situation. Get financial support from relatives or friends or stay in contact with the provider to find a solution. Some of the solutions that can be discussed are:

Request the lender to lower the EMI:

If you can satisfy the lender of the legitimacy of your financial bonds and convince him that you have a valid cause to default, he can agree to will the value of the EMI to a manageable amount. This may be achieved either through the duration of the loan or by turning the unsecured loan into the secured one by providing security.

Postpone the payment:

If the excuse for non-payment is temporary, you can ask the lender to grant an EMI-free duration. Under this provision, the lender may grant you relief from payment of a fee or penalty to your EMI for a few months.

Negotiate a settlement:

If you’ve explored all the workable solutions and are now sure that you can’t afford the remaining EMI payments too long, you may want to sit down with the lender and reach a settlement. The amount of settlement will be less than the principal amount and the conditions of settlement can vary from case to case. This is a benefit to all parties because the bank will recover a certain amount of the loan and the lender is able to close the personal loan by charging a lower amount.


If you have several unsecured loans and are unable to make timely payments, combine the debts into one personal loan. The biggest benefit here is that you don’t have to keep track of multiple EMI payments. Everything you need to do is manage a single debt.

Ask for Loan Insurance:

Generally known as Loan Protection Insurance, which is a product specifically designed to offset the regular debt costs in the case of temporary/permanent disability, work loss, or other eventuality that causes the creditor to default on his payments. Insurance may be used to repay the amount of the personal loan, although the policy may differ from lender to lender.

Final Thoughts

Every kind of debt comes with risk and responsibility. Before borrowing, one must assess the consequences of default. It is necessary to be disciplined in EMI payments in order to maintain a strong credit history.

This offers you financial flexibility to enjoy your life and be happy.

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