What Happens if I Miss My Personal Loan EMI this Month?

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Since the past few years, the number of people opting for personal loans to finance their deep-pocket purchases, for financing their trips, and to consolidate any existing debts that have been rising significantly and quickly. As it has been mentioned multiple times, personal loans are unsecured loans that are offered at minimum documentation and have a quick disbursal. Furthermore, these loans come with repayment schedules that are fairly flexible and range between 1-5 years. Banks and other financial institutions provide the flexibility to the loan seeker when it comes to choosing the loan tenure that suits their financial needs the best. In today’s digital era, there is also a personal loan EMI calculator offered by most of the lenders that allow the loan seeker to calculate a rough EMI payment.

Despite choosing the tenure for repayment along with the personal loan EMI that suits the borrowers the best, there are some scenarios wherein the borrower might face some trouble in terms of repayment of the personal loan EMI for a certain month. While, it may not seem as big of an issue to miss out on one or two EMI payments, but it does have certain negative impacts.

Classifying the 2 Types of Loan Defaults

Most of the financial institutions and banks tend to classify the personal loan EMI payment default into 2 categories:

1. Major Defaults

Major payment defaults are the kind of defaults where the borrower has not paid the personal loan EMI in a period exceeding 90 days. Most of the personal loan lenders tend to stay away from the customers that have a credit history that indicates past payment defaults. When a loan holder has a payment that is due for over 90 days, their loan account will generally be marked under the NPA Group i.e., the Non Performing Assets group.

2. Minor Defaults

Minor defaults are such wherein the loan account has a non-payment record that is of less than 90 days. Some borrowers might be holding minor defaults against the loan accounts they hold, and they can manage to recover from the negative impacts that it has on the credit score.

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Missing Personal Loan EMI Payments: The Consequences

There are certain consequences of defaulting on your personal loan EMI payment, such as:

1. Hampers Your Credit Score

The most obvious consequence that defaulting on your personal loan EMI payment has is a drop in your credit score. Most of the personal loan lenders require the loan applicants to have a credit score that is above 750 in order to qualify for applying for a personal loan. Missing on even one personal loan EMI payment can have a significant drop in your credit score.

2. Your Credit Worthiness is affected

Apart from one’s credit rating, the credit report of a borrower also factors in the credit history of the applicant. In more than often cases, if one’s credit score is good enough above the benchmark, the comments in the history regarding the default on payments in the credit report can be a reason for a personal loan getting rejected. Most of the lenders see these comments and indicate that a borrower might be a risky one and may not be able to abide by the terms for repayment on the personal loan issued.

3. Applicable Penalties

Generally, when you miss one monthly installment payment on your personal loan, the banks and lenders typically levy a late payment fee and then the lender is required to pay the missed monthly payment along with the payment of the next month before the next due date.

4. Recovery Agents

As a complete last resort, financial institutions and banks may in some cases send agents to recover the amount of the personal loan when the default period has crossed the period of 90 days. The lender usually issues a 60-day notice to the loan holder before declaring the account as NPA, and this is a situation that one should avoid at all costs.

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Ways in Which You Can Avoid Loan Defaults

While one should avoid defaulting on their personal loan EMI payments, there are some steps that one can keep in mind to avoid this situation at best. In most of the cases, the borrowers are generally aware of whether or not they will be able to pay their EMI. The following are the options to consider: 

1. Plan Finances in a Better Way

In order to prevent any chances of you defaulting on your personal loan EMI payments, it is advised for a loan holder to plan their finances in a manner that is more efficient.

2. Request Your Lender for a Lower EMI

If the loan holder foresees the scenario wherein he might be defaulting on a loan payment, he or she should immediately inform their lender of their current financial circumstances, and request for an EMI amount that is lower. Some providers might be willing to do this either by extending the tenure of the loan or converting it into a secured loan. However, there are very few providers that will be willing to do so.

3. Part Payments

These are another option that can help significantly in lowering the EMI payments along with the interest charges. If the borrower has some extra funds and an ongoing personal loan in UAE, making part payment can help in easing the overall financial burden.

4. Request for a Period that is EMI-Free

In case you are facing a break in the income inflow, you can approach your personal loan lender and request for a period that is free of EMI payments. Such an option is usually available if there is a job loss or temporary break in their source of income. The bank can give a few months’ waivers on the EMI payments, after which the borrower resumes with the personal loan EMI payments.

While personal loans are a great way to finance large purchases, the track record of an applicant plays a huge role when it comes to determining the future loan eligibility of a borrower.

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