A personal loan plays an essential role in bridging the gap between your financial requirements and resources. It acts as a lifeline during financial exigencies and allows you to improve your quality of life by financing considerable expenses that may otherwise be unaffordable. Moreover, personal loans do not need any security or collateral, making them accessible to a huge segment of individuals. However, before hitting on the personal loan apply online button, ensure you understand the fact that your job does not end with availing the required loan proceeds, you must exercise disciplined repayment practices for maintaining financial stability.

Repaying your personal loan EMI on time is crucial. Timely repayments reflect on your credit profile and score, which allows you to remain eligible for future credit options. Read on to understand the consequences you may face in case of frequent personal loan defaults.

What are the consequences of defaulting on a personal loan?

  • Adverse effect on credit score

A personal loan default has a negative impact on your credit score, making it challenging to secure future credits. A score below 750 reflects your inability to manage debt in a disciplined manner, leading to either a higher rate of interest or loan rejections for other credit products.

  • Legal notice from a personal loan lender

After missing out on your personal loan EMIs, the lender initiates communication through phone calls and reminder notices. In the case of frequent defaults, the lender might issue a legal notice, demanding instant repayment of personal loan EMIs and outlining the consequences of persistent non-repayment.

  • Loan recovery via debt collection agencies

If you fail to respond to the legal notice, the lender might approach debt collection agencies. These collection agencies have complete authority to use distinct methods to recover the loan dues through aggressive interactions and negotiation.

  • Court proceedings

In severe scenarios of loan default, the lender has the choice to file a civil suit, seeking repayment of the loan dues. This might result in court proceedings wherein as a borrower, you may be required to defend your case. If you fail to defend, the court might order your assets to be seized for recovery of the debt.

  • Defaulter’s name in records of credit bureaus

Non-repayment of personal loans can lead to your name being reported to the bureaus as a loan defaulter. This information stays on your credit report for a significant number of years, considerably affecting your potential to secure future credits.


While a personal loan offers much-required financial help to you, it is necessary to understand the gravity of making timely personal loan EMI repayments. Defaulting on a loan can result in severe legal consequences, negatively impacting your financial health and stability.

Before hitting on the personal loan apply option, ensure to use an online personal loan EMI calculator to evaluate your repayment potential, select affordable personal loan interest rate and other terms to ensure a hassle-free repayment journey. Responsible borrowing and timely EMI repayments will not just prevent you from witnessing any legal hassles but also encourage healthy financial habits for a prosperous and secure future.

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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.