Personal loan EMI missed? THESE 5 consequences could cost you big

Mint

a day ago

Household debt is continuing to climb in the country and the defaults in the retail segment are also rising. Keeping these factors in mind, missing out on your personal loan EMI is a serious financial misstep.
To combat the same challenge the Reserve Bank of India (RBI) has urged borrowers to stay vigilant and inculcate responsible borrowing habits.
1. Credit score plunge: Even a single EMI missed can hit your credit score by 50 to 70 points. This drop may raise interest rates or block new credit applications. It also leaves a negative mark on your overall credit profile. That is why do ensure that you never miss your personal loan EMIs.
Karamjeet Singh, Lead - Credit Policy, HDB Financial Services, says 'Besides incurring penal charges and overdue interest, it can negatively affect your credit score and trigger a potentially inconvenient debt collection process initiated by your financier. A damaged credit score could also impact your ability to borrow in the future.'
2. Penalty charges & interest accumulation: Financial institutions such as banks and NBFCs generally charge 1–2 % of the EMI as a late fee. Further, overdue EMIs attract penal interest, compounding the debt. These developments can result in serious escalation of costs.
Bhushan Padkil, SVP & Head, Direct to Consumer Business, TransUnion CIBIL, stated that 'Missed EMIs can significantly impact your credit score and reflect poor repayment behaviour. Consistent repayment track record enhances creditworthiness and access to better credit opportunities. Make sure you monitor your CIBIL score and credit profile regularly to ensure you are credit-ready.'
3. Minor vs major default: NPA classification: It is crucial to keep in mind that missing out on payments for under 90 days is a minor default. Beyond that, the personal loan turns into a Non Performing Asset (NPA). It is then flagged by both credit bureaus and banks. Once categorised as NPA your loan record remains tainted for several years and creates complications with future personal loan and credit card applications.
4. Recovery calls & legal action: Recovery calls, legal actions are generally initiated after 60 days of missed dues. Borrowers may have to face recovery agents at their doorsteps. Continued default can result in legal proceedings under the Negotiable Instruments Act, 1881.
5. Long‑term impact on borrowing capacity: A constantly deteriorating credit score along with NPA listing can easily hurt future loan eligibility of an individual. With personal loan defaults still elevated among private banks borrowers might struggle to get new credit or only be able to secure new loans with very high interest rates along with non flexible repayment terms and conditions.
Action Benefits Automate EMIs Avoid missed payments entirely Talk to your lender Request EMI restructuring or moratoriums if cash‑strapped Build an emergency buffer Covers EMI for tough months and secures repayment consistency Check your credit report Spot unreported defaults and correct errors promptly
Therefore, borrowers must treat EMIs as sacrosanct. Maintaining timely payments is vital not only for personal credit but also for the nation's economic health.
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