A personal loan is usually an unsecured loan, where the lender's risk of losing money is high. Before sanctioning a personal loan the lender's check the CIBIL report of the borrower to be sure of his past repayment behaviour. When you take a personal loan, you agree to make fixed monthly payments based on the terms of the loan. Non-payment of even a single EMI will deteriorate the relationship with the bank. Though you get a grace period of 1-2 months (after the scheduled payment date) before your payment is considered late. If you still don’t make the payment your debt enters a default.
For the first 30 days, the banks collection team will call you and visit you to coerce you to make the payment. Though the team will talk to you politely, they will consistently pester you to pay the money. If the payment is not made beyond 60 days, the real pressure builds up. Collection guys will follow you everywhere to get their money. But if they still don’t receive the payment post 90 days, they mark the loan as an NPA and inform the RBI. The lender will then either take legal action and send you a court notice under section 58 or else sell the debt to a collection agency.
In case you put an asset as collateral to take a personal loan at a comparatively lower rate, your asset can be seized in case of non-payment of EMIs. Initially a notice of default is issued. To prevent the seizure you should contact the bank immediately and work out a payment schedule. In case you do not act upon the notice, the lender will come and seize the asset.
If you miss the scheduled payment date, you are subject to pay a late fees amount. Penalties, late fees and other legal costs increase your financial burden further.
In case you took an unsecured personal loan, the bank can only try to recover the amount through legal actions or collection agents. If the bank takes the legal course, you will need to appear for court proceedings. If the debt amount is not large, the bank may avoid a legal course, and just sell it to collection agency. If this happens, you will receive multiple calls from the agents throughout the day asking you to pay the full amount along with the interest. They will follow you everywhere from home to office in order to collect the dues. They may even take away your assets forcefully if everything else fails.
Failure to pay the EMI on time severely affects your credit score. When late or missed payment records enter the CIBIL Report they affect the “Payment history” factor that makes the CIBIL score. This brings a severe drop in the score.
Once your CIBIL report shows a black mark of personal loan default, your credit rating takes a hit. With a low CIBIL score, you will find it difficult to get approved for loans in the future. Lenders will shy away from lending to people who have defaulted on past payments. If you are planning to buy a house or car, you may have to put your plans on hold. All you may get is personal loans for bad CIBIL score, which come at exceptionally high rate of interest. A low CIBIL score may also come in the way of getting your dream job, or a house on rent. Employers and landlords also check your CIBIL score to know how stable you are in your financial life.
If you think you will be unable to meet the scheduled payment, you must talk to the lender in advance. Explain the reason of your inability to arrange money. If you have had a consistent payment record in the past, the bank may agree to work out a solution.