Help Center
Locate us
How to Avoid Defaulting on a Personal Loan
Experience the all-new Kotak Netbanking
Simpler, smarter & more intuitive than ever before
Popular Products
Show More
Quick Help
Show More
Frequently Asked Questions
Show More
Experience the all-new Kotak Netbanking Lite
Simpler, smarter & more intuitive than ever before. Now accessible on your mobile phone!
Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
Success
Failure
A personal loan is often the go to solution when you need quick access to funds—whether it’s for medical expenses, family wedding or to consolidate other debts. Once the loan is disbursed and repayment begins, it's natural to feel the pressure of managing monthly outflows. What happens if you miss an EMI or two? What if something unexpected throws your finances off balance? Can defaulting on a personal loan really mess up your credit?
You’re not alone in wondering about all this. A personal loan is helpful when you need money without offering collateral but it also comes with a big responsibility. If you’re searching for ways to stay on top of your loan then here are some practical tips for you.
What happens when you miss repayments?
Even before it reaches that point, a single missed EMI can attract late payment charges and if repeated, it could lead to legal notices or recovery calls.
Borrow within your comfort zone
Before taking a loan, it’s important to look at your monthly expenses and check what EMI fits comfortably. For example, if your monthly income is ₹50,000 then you might think an EMI of ₹20,000 is manageable. But once rent, utilities, groceries and other bills come in then you could find yourself stretched thin.
Use a personal loan EMI calculator to understand your monthly commitment. Factor in a buffer for irregular expenses too. Your EMI shouldn’t be more than 30–40% of your net income unless you have zero other liabilities.
Know the total cost
A personal loan involves more than just the interest rate. There are a few other components that can affect your repayment over time.
Set up automatic payments and keep a buffer
Automating your EMI payments through ECS or standing instructions is one of the easiest ways to avoid missing due dates. But automation works only if your account has sufficient balance. A low balance on the due date can lead to missed payments, dishonour charges and even a dent in your credit score.
Maintaining a small buffer say ₹2,000–₹3,000 more than the EMI amount can help you avoid such situations. You can also enable SMS or app reminders to track your balance around EMI dates.
Act early if you face financial stress
If you’re going through a tough period financially and suspect you may not be able to meet the next few EMIs then the best step is to inform your lender early. Many banks offer restructuring options or flexible repayment terms if they’re notified in advance.
Delaying this conversation until after you’ve missed multiple EMIs can limit your options. On the other hand, early communication shows your willingness to repay and may offer alternate solutions without harming your credit standing.
Build an emergency reserve
It’s not always possible to foresee financial hurdles. But creating a small emergency fund even if it’s just 10% of your income every month can go a long way. Over time, this reserve can help cover EMIs if your income is interrupted or reduced.
For example, saving ₹1,500 a month can build a ₹9,000 reserve in just six months. That might be enough to cover at least one EMI in a difficult month and give you breathing room when it’s most needed.
Common reasons behind loan defaults
Understanding why it happens can help you prepare better. In most cases, it comes down to:
Taking a high loan amount without assessing how it fits into your monthly budget.
Job loss, medical emergencies or sudden expenses can disrupt your cash flow.
Apart from the interest rate, personal loan fees and charges like processing fees, late payment penalties or foreclosure charges can add up if you're not careful.
Understanding the impact of a personal loan default is essential for long term stability. When managed responsibly, it can be a powerful and flexible financial tool.
Whether you're planning a purchase, facing an unexpected expense or celebrating a special occasion, Kotak Mahindra Bank's Personal Loans offer quick access to funds with minimal documentation and instant disbursal. Apply today for a secure and hassle-free borrowing experience tailored to your needs.
You have already rated this article
OK