Consequences of Non-Payment of Personal Loans

Personal Loan Default

Without a doubt, personal loans are very helpful in overcoming our urgent financial needs. We all are tied up in some kind of financial predicament. Several of us today have taken some kind of loan to meet our basic necessities. Whether it is for marrying a family member or paying for the tuition fees of your kid or clearing the outstanding medical bills, whatever might be the reason; the personal loan is the first option for many. They can help us in evading our lack of money situations. So, if you are a lucky candidate, you can easily get a personal loan, but with a condition that it needs to be repaid monthly in form of EMI’s (Equated monthly installments). However, sometimes our circumstances do not work in our favour and we are unable to repay the loans in a timely manner. As a result, it weakens the relationship between the borrower and the lender. The non-payment of EMI’s for a prolonged period can incur serious consequences that require immediate attention from the borrower.

• Banks Proceedings on Loan Defaulters

Whenever an individual borrows money from a financial institution, it can be a bank or NBFC (Non-Banking Financial Company); they are legally obligated to repay the amount with interest in EMI’s. Unable to adhere the repayment guidelines can result in serious repercussions and can even lead to legal actions if no actions are taken. Banks also nowadays are very conscious for loan defaulters therefore if you see many banks provide loan easily to salaried or government employees like Yes Bank personal loans are available to teachers , Government employees and existing Yes bank customers.

• Banks Inform CIBIL

One of the significant consequences of defaulting payments is that your credit score gets affected negatively. Banks are legally responsible for updating your financial records to CIBIL. So, if you have been an excellent paymaster till date, few defaults can make your credit score come down by a significant percentage which can further affect your possibilities of getting a loan in future. Also, if the situation continues and you are unable to pay at all, banks would declare you as an NPA (non-performing asset) and no other bank would like to deal with you in future. Therefore, it is important to make timely payments to the bank.

• Lenders Will Notify You

No financial institution takes a legal action if the borrower defaults or late pay their installment for a month or two. But, if the trend continues consecutively for three months, banks are legally responsible for sending reminders and notices to the borrower for repayment of the loan EMI’s as early as possible. Failing to respond to those notices can make a borrower as an NPA and reduce your chances of getting loans in future.

• Legal Notice for Non Payment of Loan

Becoming an NPA means that you are not responding to the reminders or notices sent by the bank and now the bank is authorized to take legal action to recover their debt. The lender would first send a legal notice to the borrower and look for an early response. If the borrower does not respond to the legal notice, banks have rights to move the case to debt recovery agency.

We don’t have control over our situations, but it is all about what kind of approach does a borrower adapt. Sitting quietly on a debt will only worsen the situations. Banks are liable to take legal actions, but only if the customer does not respond to initial measures taken by them. Banks may give you a benefit of doubt in certain situations, however only till a certain period of time as according to RBI guidelines, financial agencies are required to give reasonable timelines to the customer to repay before taking any legal actions.

Things You Can Do in Case of Non-Payments

Every customer is different. Some are unable to pay due to unforeseen circumstances, while some just don’t realize the importance of repaying to the bank. So, if you are one of them who like to revive from the non-payment situation, here are simple 3 steps that can be taken.

1. Reduce the EMI Amount

If you are unable to pay because you cannot afford the monthly EMI amount as you have lost your job or your income has reduced, you can negotiate with the bank to reduce the EMI amount for you to comfortably pay monthly. Banks may do so, but you may have to pay a higher interest. Once you gain back your financial rhythm, you can again get back to the same repayment schedule.

2. Loan Deferment

So, you are unable to pay because you have lost your income or incurred losses in your business, you can inform the bank and ask them for a payment holiday for few months until you figure out a way to make the payment. However, banks may charge penalties for doing the favour.

3. Loan Settlement

If you have non-paid your loan for a long time and the interest have accumulated to an extent that it is higher than the principal amount, you can ask the bank to settle the loan to an amount that you can repay comfortably. Banks would then work out a payment plan for an amount in such a manner that banks get their money refunded and even customer is able to pay. However, be assured that loan settlement would definitely improve your credit score.

Getting Back on Your Feet

A common human nature when it comes to non-payment of loans is that they start ignoring the calls and reminders from the bank. This shouldn’t be an option at all. Borrowers should always proactively inform banks about their financial situation and provide them with a realistic estimate as to when you could start repaying. The borrower and the lender need to work out together to figure out a plan that works in favour of both the parties.

But even before getting to this step, look out for ways through which you can bridge the gap. Ask your friends or family to pay for a few months. You can also reduce other expenses wherever possible to create a room for your EMI’s. So, take charge of your situations and try not to late pay or non-pay your loan.