Agree with it or not, in times of urgent financial emergencies, a personal loan comes in as a super saviour. It helps bridge financial gaps in people’s lives! It can be availed of by anyone for various types of needs. Plus, with a personal loan, you can make convenient monthly payments at a fixed interest rate for a predetermined amount of time.
But what happens when you fail to repay it? Since life is always full of surprises, the concern of failing to make EMI repayments on time is a genuine one. A cash shortage caused by bankruptcy or other obstacles might send your finances into a tailspin. Therefore, to avoid being a loan defaulter here’s a guide that can help you understand the consequences of not repaying a personal loan.
Consequences Of Defaulting On Personal Loan
1. Credit Score Goes Downhill
The credit score is one of the most important factors every lender checks while offering money to a borrower. The lender refers to the credit score and report generated by CIBIL or any other credit rating agencies. It is here that the decision to grant the loan application is either accepted or rejected based on their credit score ratings. In case your score is on the lower side, the lender may not be interested to help you. You will also be disentitled to a future loan until the default is cleared. Therefore, always try to pay off the overdue as quickly as possible to prevent your credit score from taking a hit.
2. Constant Calls From Banks
When you apply for a personal loan, you need to be responsible enough to repay it on time. And once you fail to repay the borrowed amount by the end of the month, you will start receiving back-to-back calls from the lender or the lending institution. A slip of one or two EMI repayments is always allowed. But if the issue persists, the lender may start sending out reminders in the form of calls, SMS, email, or app notifications urging them to pay soon.
3. Legal Notice Can Be Imposed
When you take an instant personal loan, you must provide blank cheques as collateral for the loan amount. The lender will submit your cheques to the bank given that you are now unable to repay the loan amount. If the checks are returned due to inadequate balance, the legal division of the lender will issue you a legal notice asking you to pay the penalty within a stipulated date.
4. Court Case Can Be Filed
In case you are still unable to repay your personal loan, the lender or lending institution will initiate a lawsuit against you to obtain the money. You will be left with two options to come out of this situation. First, to pay the debt in full, or second, to reach for an out-of-court settlement with the creditor.
5. Regular Visits From Recovery Agents
Every financial firm has a recovery division that is in charge of collecting debts from customers who have fallen behind on payments. These agents will visit you at your home or place of business and demand that you repay the sum as quickly as possible.
To Conclude
Always remember that when obtaining a personal loan, timely repayment is a must. However, the lending institution starts a loan recovery action if the customer is unable to pay back the debt. While the methods will vary significantly depending on the lender, they all include either easing certain requirements to make the process of repayment simpler or taking legal action against the borrower.
Therefore, only take out a loan if you can afford to pay it back in whole and on time.
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