Though defaulting or not paying a couple of EMIs is never recommended, but sometimes due to reasons beyond your control, you might not be able to pay them.
What happens then?While some banks and other money lending institutions offer flexible policy plans, most don’t and take action.
Since Personal Loans don’t require you to put up any collateral against them, defaulting on it will most probably lead to the following things happening:
Increased interest rateOn defaulting on your EMIs, the bank generally increases the rate of interest on the loan and/or levies additional fees and charges on your loan.
Lower CIBIL scoreAll banks and NBFCs report failed payments and credit card payment defaults to credit bureaus such as the CIBIL and Equifax. Hence, yourCIBIL scorewill be impacted negatively. Do not take this lightly and neglect it, because it takes a lot of effort to rebuild your credit score.
Collection agenciesBanks and other NBFCs sometimes turn to collection agencies to get back their money. These agencies could call you, write you letters or make a house visit.
Your co-signer or guarantor suffersIt’s not just you who faces the brunt of defaulting as your co-signer and/or guarantor’s credit scores also take a hit. Additionally, they too receive calls and visits by loan recovery agents in order to recover the loan amount.
Legal action by banks and NBFCsThere have been cases in which lenders have opted for various legal routes with a view to recover money from personal loan defaulters.
Rectifying the debtIf you do end up defaulting on a loan, don’t worry. You can bring yourself out of that situation by taking the following steps:
Don’t panicWe understand defaulting on a loan can become stressful. That’s why, begin with calmly figuring out your expenditure and understanding what led to this situation.
Communicate with the lenderTalking with the bank can sometimes work wonders. Explain to them why/ and under what circumstances you defaulted and try to work out a solution that helps the both of you.
Consider refinancingRefinancing gives you the ability to reduce your monthly EMI amount. However, most banks only consider individuals with good credit scores for refinancing.
Source additional income or cut backFind ways to make additional income by taking up a short-term job. If that isn’t a feasible option, try budgeting your monthly expenses to save more and pay off the additional debt.
Learn more about your Personal Loan Eligibility here
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
Disadvantages of Early Retirement - What Happens When You're Not Working?
Early retirement seems to be good, many people enjoy life without working especially with extra earnings. But they are not aware about the cons. Lets explore the disadvantages of retiring early to save your retirement life.
5 Benefits of Health Insurance that Makes it a Must Have Cover
Here are the 5 benefits of health insurance that makes it a must to cover
When Should You Withdraw Money from a Mutual Fund?
In case of a sudden change in fund strategy or an underperformance scheme for more than 3-4 years, it makes sense to withdraw money.