Long-term consequences of defaulting on loan repayments
If you take a loan, make sure you have the capacity to repay it on time. Missing on your loan repayments can have serious consequences.
A loan by definition is the temporary provision of money with interest to help you meet a goal such as buying a house, paying for your daughter’s education, etc. A loan can therefore be called a process where you buy money from the bank. You pay the bank a certain amount in exchange for it lending you the money. This pay back is done through EMIs where you pay back both the principal and interest in certain amounts every month. But there may be times when you couldn’t pay your EMIs due to some unforeseen circumstances or it may have skipped your mind to make your payment. Defaulting on a loan can to lead to consequences you may not be aware of, and this is why being regular in your loan repayments is important.
Here are the consequences when you default on a loan:
Your Credit Score Will Fall
Most lenders will not trouble you if you miss one repayment but if you miss several EMIs that you owe, you can expect a barrage of phone calls asking you to pay up on time. In extreme cases, some banks and non-banking financial institutions may contact credit rating bureaus and ask them to slash your credit score. If this credit score falls drastically, other lenders will think twice about sanctioning you a loan or may even flatly refuse to lend money to you. And if a lender agrees to lend you funds, you will get it at a high rate of interest.
An Asset You Need Could be Sold
If before giving the loan your lender asked you to provide a collateral as a guarantee or security in case you fail to pay back the loan, then the lender could sell the asset used as a collateral, which could be your house, car or land. For example, if you take a loan to purchase a vehicle and if you do not pay the loan back, the bank can seize your vehicle and sell it to recover the loan amount. However, the lender can take action against you only if you have not paid EMIs for 3 months. Then it must serve you a notice of 60 days. If the bank wants to sell off your property it must serve you another notice of one month. Even though loan defaulters have some protection, the consequences are too dire to ignore your repayments.
Additional Fees May be Imposed
In the case of Personal Loans, which are unsecured as there is no collateral as guarantee, the bank or financial institution from which you have borrowed will impose additional fees and even up the interest rate. If your delay in repaying back is considered chronic, the bank or NBFC may engage a collection agency to recover the money from you. If the collection agency is unable to recover the money from you, they can take you to court by filing a legal case against you.
Someone Close to You can be Affected
It may so happen that due to your negligence or irresponsibility someone near and dear to you will have to bear the burden of repaying the loan for you. This you could give your guarantor, the one who stood by you when you applied for the loan, sleepless nights as the onus to repay the loan now falls on him or her.
It is, therefore, important that you take a loan only if you know you can pay it back in a timely manner. One way of doing this is to find out what your personal net worth is and calculate your eligibility beforehand. Make arrangements of how you will repay a loan in case you end up losing or job or facing similar circumstances, and only then sign up for a loan with a lender who has flexible repayment options. Bajaj Finserv’s Personal Loans are easy to apply for and easy to get and go up to Rs.25 lakh.