Who is a loan defaulter Know what will happen if you do not pay the EMI of the loan - what to do to deal with the situation of non-payment

When you take a loan from someone, you automatically enter into a legal agreement to repay the loan as agreed. Even if you intend to repay that loan, you may not be able to repay it on time. You get stuck in your day-to-day activities and may forget to repay the loan. One after the other you may forget more repayment. Before you can understand anything, you are labeled as a personal loan defaulter. So what happens when you can't pay the installment once or twice? It is important to know how a personal loan default affects you and your credit history.

Who is a loan defaulter?

Of course, if on a date you have forgotten to make the payment, it will not make you a defaulter. But if you do not pay multiple EMIs one after the other, the lender may report you as a defaulter. Some of them even give you some time to pay. However, they also charge you a certain amount as late fee. This gives you an opportunity to improve your credit status.

What if you can't pay the EMI? According to Mr. Rohit Garg, CEO and Co-Founder of Smartcoin, here are some things you need to keep in mind-

Your credit score will be affected

All banks and NBFCs are expected to report non-payment to credit bureaus like CIBIL and Equifax. Once reported, it will seriously lower your CIBIL score and make it difficult for you to get any kind of credit/loan in future.

Your co-signer will be affected

If you are a co-signer or guarantor in a personal loan, non-payment on time will also affect your credit score. In addition, they will continue to receive calls from lenders and recovery agents in their efforts to recover the loan amount.

your financial worries will increase

Expenses such as late fees, penalties, legal costs, get added to the unsettled loan balance, making the amount to be repaid much higher than the loan you had taken.

Banks or NBFCs can take legal action

If the entity fails to recover the payment it is receiving from you, it may decide to proceed legally to recover the funds.

If you have not been able to make multiple payments on time, then below are some steps to deal with the situation-

talk to the lender

There is nothing that cannot be resolved with simple conversation. Contact your lending institution and explain the reason for the default. They may also come up with a solution that benefits both of you. You can request more time from the lender for making the repayment. If nothing works, you can request a settlement from the bank.

See ways to increase your income or cut expenses

Explore some short-term jobs or freelance projects to earn more money. If that's not an option, consider planning and cutting back on your monthly expenses.

Know your rights as a defaulter

Banks and other financial institutions are governed by the Reserve Bank of India (RBI). They are dedicated to best practices as part of their code of commitment to their customers. For this reason, as per the law, the bank or the recovery agents selected by the banks cannot threaten you or harass you.

Personal loan is an unsecured loan and it is given to you keeping in mind your repayment capacity. Therefore, it is your obligation to repay the loan as agreed. Failure to do so can have negative consequences on your credit health and financial life.