A personal loan through any lender, may it be Moneyview, Moneytap, Cashe, EarlyPay etc., is an unsecured credit option, which is provided with zero restriction on the funds’ end usage. In current times, the demand for personal loans has enhanced drastically due to the ease with which it is issued. Only because it is available easily and with an instant turnaround time, you must not get attracted towards it and apply for it without giving it thought twice. You must consider your repayment capacity and borrow a personal loan only if it is necessary.
If you fail to suggest your finances well and borrow erratically, there is a good chance that you may end up in a financial mess, which may result in repayment defaults. Continue to read on to know the punishments and repercussions for missing out on your personal loan repayments.
What occurs if you fail to repay your personal loan EMI on time?
After meeting the eligibility criteria of a personal loan and submitting the important loan documents, you commit to meet the loan repayment within the repayment tenure that you opted for in EMI. This means you must repay the fixed amount on the specified date each month. If you fail to plan out your finances meticulously or if you are not able to repay the personal loan EMI by the due date owing to unavoidable circumstances, you must bear the punishment for the non-repayment in the form of a steep penalty.
∙You get repetitive reminders in the form of SMS, email, phone calls, or notifications from the lender in case you miss out on the personal loan EMI. If the repayment still is not made and reasons for missing the repayment are genuine, the lender might provide you with some additional time over the due date. Despite the deadline extension, if the loan EMI is unpaid, then you become liable for penalties. Additionally, to this, it may even have a negative effect on your credit profile and score.
Personal loan gets classified as a non-performing asset if you continue to default 3 continuous EMIs. The gravest punishment for the non-repayment of the personal loan drastically falls in the credit score. Your lender will continue to keep the bureau informed regarding your repayment behaviour. As you miss each loan EMI, your credit score is reduced by around 50 to 70 points. Continuing this behaviour will lower your score drastically and might even lower your chances of availing of future credit options.
Legal action and punishment for missing out on personal loan repayments
Personal loans will get classified as non-performing assets in case the borrower defaults over 90 days. If the personal loan is not repaid even after a period of 180 days, the lender holds full right to legally proceed against the personal loan borrower as per Section 138 of the negotiable instrument act of 1881. Before moving ahead legally, the lenders like Moneytap or Moneyview and others will follow a recovery measure like sending 2 reminders followed by a recall letter. A recall letter will act as a final reminder where it will particularly mention the lender can proceed legally in case the dues are not cleared within a particular date.
In case the borrower makes an appeal to the personal loan lenders and endows a valid reason for non-repayment, then the lender might provide choices like loan restructuring etc. Restructuring of the loan will make it extremely convenient for loan borrowers to repay the monthly dues on time. On the other side, if the personal loan borrower diverts the fund and willfully avoid making the loan repayment or if the pledged collateral or security is sold (in the event of availing secured personal loan) without informing the lender, then a criminal case may be filed against the borrower as punishment for the personal loan non-repayment.
While lenders hold the right to undertake legal actions against the defaulting loan borrower, there are specific rights that the borrowers are even eligible for. These are: Right to claim balance:
. Right to residual value after appropriating outstanding liability with sale proceeds of assets.
∙ Right to be treated politely: This is the right of the borrower to be treated with dignity by the lenders.
∙ Right to be heard: Right to communicate their opinion.
∙ Right to fair value: Right to have knowledge about the value at which asset is sold.
∙ Right to notice: Right to understand facts of various cases, which include charges against the concerned party.
What happens if you default on the secured loan?
Loans where the collateral like property, gold, LIC policy, NSE etc., is provided are known as secured loans. Punishment for personal loan non-repayment that are secured by way of pledge of jewellery or mortgage of property is very different. Initial recovery measures like sending reminders are the same as unsecured loans. When a personal loan borrower fails to respond to the reminders, the lender sends a notice for the sale of assets along with the auction date.
In the event of a property mortgage, after the loan gets classified as a non-performing asset, a SARFAESI Act notice is sent that states the adequate time to make the due repayment under the legal framework. If not paid within the permitted time, the next measure will be to send a notice mentioning the property that will get auctioned on a specific date. Reserve value set for auction will even be mentioned. The time gap between the notice date and auction date will be 1 month. In case the borrower clears off the due within time, the auction will get called off.
If the asset is sold, the borrower will get the right to claim residual value out of sales proceeds after the whole dues are paid off.
Impact of personal loan non-repayment on credit score
Lenders will continue keeping the bureau informed regarding the repayment behaviour of the borrower. Every EMI that is missed will get recorded in the credit history of the personal loan borrower. There will be a fall in the score by 50 to 70 points every time. In case the default continues consecutively for 3 months, a personal loan will get classified as a non-performing asset, and this will get reported to the bureau. It will have a very significant effect on the score to the extent that it might become tough for you to get a further loan. This will negate your loan chances of availing of other loans in the future. It is thus recommended to plan out your finances wisely and borrow just if you require to and if you can easily afford it.