Who is a loan defaulter?
Of course, if on a date you have forgotten to make the payment, it will not make you a defaulter. But if you do not pay multiple EMIs one after the other, the lender may report you as a defaulter. Some of them even give you some time to pay. However, they also charge you a certain amount as late fee. This gives you an opportunity to improve your credit status.
What if you can’t pay the EMI? According to Mr. Rohit Garg, CEO and Co-Founder of Smartcoin, here are some things that you need to keep in mind-
Your credit score will be affected
All banks and NBFCs are expected to report non-payment to credit bureaus like CIBIL and Equifax. Once reported, it will seriously lower your CIBIL score and make it difficult for you to get any kind of credit/loan in future.
Your co-signer will be affected
If you are a co-signer or guarantor in a personal loan, non-payment on time will also affect your credit score. In addition, they will continue to receive calls from lenders and recovery agents in their efforts to recover the loan amount.
your financial worries will increase
Expenses like late fees, penalties, legal costs, get added to the unsettled loan balance, making the amount to be repaid much higher than the loan you had taken.
Banks or NBFCs can take legal action
If the entity fails to recover the payment it is receiving from you, it may decide to proceed legally to recover the funds.
If you have not been able to make multiple payments on time, then below are some steps to deal with the situation-
talk to the lender
There is nothing that cannot be resolved with simple conversation. Contact your lending institution and explain the reason for the default. They may also come up with a solution that benefits both of you. You can request the lender to give you more time to make the repayment. If nothing works, you can request a settlement from the bank.
See ways to increase your income or cut expenses
Explore some short-term jobs or freelance projects to earn more money. If that isn’t an option, consider planning and cutting back on your monthly expenses.
Know your rights as a defaulter
Banks and other financial institutions are governed by the Reserve Bank of India (RBI). They are dedicated to best practices as part of their code of commitment to their customers. Therefore, as per the law, the bank or the recovery agents selected by the banks cannot threaten you or harass you.
Personal loan is an unsecured loan and it is given to you keeping in mind your repayment capacity. Therefore, it is your obligation to repay the loan as agreed. Failure to do so can have negative consequences on your credit health and financial life.