Certain eventualities and dispositions often hamper an individual from maintaining a regular and a healthy financial record but let us explore what happens when you default on a Personal Loan. Firstly, you are immediately termed as a “defaulter” and the implications on your credit profiling are huge. However, you don’t have to remain a defaulter all your life and hence we shed light below on various ways to rectify your situation.
What Leads to Defaulting?
Personal emergencies, loss of job, death, company going bankrupt, accidents and various unpredictable calamities can lead an individual to defaulting on a Personal Loan. In such cases if the bearer is uninsured or hasn't left equivalent funds to tide over the situation, repaying the Personal Loan is impossible. However, it is important to note that the biggest misconception in deferral payments is the panic factor that creeps in with the failure of repayment. Amidst half known facts, the defaulting individual typically ends up worsening the situation.
Basics of Dealing with a Personal Loan Default
A lending institution like Bajaj Finserv usually provides a buffer time of at least a month or two before beginning the process to recover funds on a Personal Loan. However, reminding the customer to keep a good track of his or her credit rating is entirely at the discretion of the lending clubs. Following some simple steps while dealing with a Personal Loan deficit can make the bearers life much easier. For example, as soon as you are aware of your situation the first step would be to inform your lender and ask for their understanding.
How to Manage Personal Loan Defaults?
There are some key aspects that the bearer must keep in mind to rationally resolve the issue of delay and lapse.
- Clear you intentions: The bearer must inform the lending club about the situational crisis and the reason for the delay. A workable and empathetic option can be charted only if the bearer is able to prove his intentions to repay. Most banks are empathetic if the bearer genuinely ascertains their willingness to pay. Subsequently, the bank will also make provisions to aid the bearer and will withhold the issuance of any such statement in their documentation.
- Restructure the loan: Banks have the provision to help you restructure the loan by reducing the EMI amount and increasing the tenure. But such provisions can be accessed only on the basis of the severity and genuineness of the situation. In this duration, if the bearer feels that things have streamlined at his/her end, then it is also possible to negotiate with the bank for a higher EMI and close the loan sooner than planned.
- Deferring the payment: A temporary relief can be sought from the bank where in both the parties agree to withhold the payment for a specified duration. The lending club does impose a penalty for this duration but then once things are settled, the bearer can continue to pay off his loan as per the original time frame decided upon with the lending club.
- One time settlement: In case of uncertainties, you have the option to settle your outstanding Personal Loan amount by making a one-time settlement. The lender can waive off certain charges from the total amount payable and will offer a one-time payment for the purpose of settlement. In case of aggravated financial instability, the bearer will have to file for bankruptcy and will have to free himself from the loan commitment.
- Conversion into secured loans: Since a Personal Loan is an unsecured loan, lending clubs tend to be more agile and impromptu in recovering. By offering a security, the bearer can win the lender’s trust and can thus bring down the rate of interest for the EMIs while rescheduling.
Consequences of Defaulting on Personal Loan
The disadvantage of missing an EMI can weigh heavy on your credit history and implies a risk of default on Personal Loan. Some consequential actions are elaborated below:
- Deferring a payment will invariably result in surplus penalty charges being levied on the amount that has to be paid. These are additional to what was actually promised to the bank in the original contract.
- Delays have a direct impact on your credit history. The credit report holds details of your delays thus projecting you as a borrower with low credit rating.
- Credit repayment delays directly correlate to problems in securing loans in the future. This can result in getting a loan at an exceptionally high rate of interest.
- Legal hassles often erupt as a result of non-payments on a Personal Loan as the lending institution will most definitely walk the extra mile to ensure the repayment of their debt.
It is essential that once an individual secures financial aid from a lending institution, they must respect their commitments in order to repay it. Consequently, defaulting on a Personal Loan is not as dreaded a process as it seems and if the borrower follows the correct procedures then he will only secure the lender’s goodwill and good faith.