Availing a personal loan today has become simpler than ever before. Lenders disburse the loan within a day for a pre-approved personal loan and between two and seven days in case you click on the regular personal loan apply option. Owing to a personal loan’s quick disbursal feature, many are attracted towards such unsecured loans in scenarios of financial crunch or monetary mismatches. However, one of the common shortcomings of quick personal loan availability is many miss-out on assessing the major financial implications attached to them.

While availing a loan is simple, repaying it on time and in full could become challenging for many. There may be instances in life where your finances may be strained. Illness, accident, job loss, unexpected expenses, and family tensions – all tend to impact your personal loan EMI repayments. Discussed here are some consequences you may witness if you miss out on personal loan EMI payments.

Missed personal loan EMI is divided into two major categories. These include –

  • Major defaults

As suggested by the term, these levy high penalties. A missed personal loan EMI is looked upon as a major default in case you have not repaid your outstanding dues in the past 90 days. Remember, this information about your default is mentioned in your credit report, which may impact your chances of securing a loan or credit card in the future. Moreover, many lenders may even mark your loan account application as a non-performing asset (NPA) if your credit profile holds a major default record.

  • Minor Defaults

As the name suggests, this kind of default results in minor consequences, which can be corrected. A missed personal loan is termed as minor default if you repay your outstanding amount within 90 days. If you face a minor default scenario, you can recover from such negative consequences by taking corrective steps on time.

What are the consequences of missing out on loan EMIs?

  • Negatively impacts your credit score

This is a well-known outcome of missing out on your personal EMI repayment. When you do not make your EMI repayment timely, it is termed as a default on your profile. As an outcome, your credit score falls. Note that having a strong score is crucial when you place a credit application in the future. It ensures quick processing and disbursal at affordable rates.

  • Incurs late payment charges

Various lenders charge late payment fees when you miss out on paying your personal loan EMI timely. The penalty levied is generally up to 2 per cent of the EMI, but may vary across lenders.

- Recovery Agents

At times, personal loan lenders may give your address to recovery agents, who may visit your residence to collect the outstanding dues. Usually, most lenders include recovery agents when the personal loan is placed in the NPA category. Note that a visit from recovery agents to your place could be stressful.

Ending note

Owing to the quick availability of personal loans, it might be tempting to avail one in case of a cash crunch. However, before you select any lender, you must ensure to use an online personal loan EMI calculator to compute your preferred EMI, interest rate and repayment tenure as per your affordability and monetary inflow. Doing so would allow you to avoid any event of missed payments or defaults owing to any financial commitment or urgency.

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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.