What Happens If You Can’t Pay Your Loan

Getting a personal loan is the most sought-after method to gather funds in an emergency or unexpected expense. However, it is crucial to pay it back too. Not repaying your loan to the lender can have many consequences.

When you stop making a 5 Lakh Personal Loan or other loan repayments, its impact depends on the type of loan and how long you have missed the payments. If you can’t repay a loan, you might face some grave consequences such as a late payment penalty, the account going into default, the balance being sent to collections, a drop in your CIBIL score, bankruptcy, or a potential legal action initiation by the lender including asset seizure.

Duration of Non-Payment of Loan	Consequences
0 – 30 Days	Lenders usually don’t report missed payments of a personal loan to credit bureaus until one billing cycle (which is typically 30 days) has passed. If possible, try to arrange for the payment before that date to prevent the late payment from impacting your credit score. However, you may have to pay late payment fees and penalties if your payment is just one day late. This fee can vary depending on your lender and the outstanding loan amount.
30 – 60 Days	If your payment is at least 30 days past due, your account will be considered delinquent, and the lender may report the non-payment to credit bureaus. This negative mark can remain on your credit report for up to 7 years and become a hurdle in the way of getting a loan/ credit card in the near future.
60 – 90 Days	The lender will keep contacting you requesting payment. If you still don’t pay, the missed payments can appear on your credit report in 30-day increments.
90 – 120 Days	After 3 to 6 months of missed payments (depending on your lender), your account changes from delinquency to default status. Being a loan defaulter means you have failed to repay the loan according to your loan agreement’s terms.
120 Days or More	A lender will “charge off” your account after 6 months of missed payments (some lenders may do this sooner). A charge-off will appear on your credit report and it indicates that the lender has quit trying to collect the money from you. The lender will generally sell the debt to a third-party collection agency, which means you are still responsible for the debt, but the collection agency takes over attempting to collect rather than the lender.

If you are unable to repay your loan and wondering how you will keep making EMI payments, here’s what you should know.

Steps to Take if You are Facing Difficulty in Loan Repayment:

Communicate with your lender: Get in touch with your lender and explain your situation as soon as possible. Explore potential solutions, such as using a bonus for payment, extending your repayment tenure to reduce your EMI amount or temporary deferral.
Opt for debt consolidation: Consider consolidating your multiple debts (if applicable) into a single loan payment option with a lower interest rate.
Consider loan balance transfer: You can transfer your 10 Lakh Personal Loan or any loan balance to another lender who is offering more favourable terms and lower interest rates. Lower rates will reduce your EMI burden.
Reduce your expenses or increase your income source: Try to cut down your monthly expenses or any insignificant spending. You can also find additional income sources through part-time jobs, freelancing, consulting, etc. to help you repay the loan.
Seek professional help: If you are struggling to manage your debt, you may consider seeking help from a financial advisor or credit counsellor.
Look for extra money: Find other ways to make payments and avoid loan default. For instance, borrowing from a family member or friend. Repay them when you will be able to do that. You can also tap into emergency savings.

When you are struggling to pay back a personal loan, it is important not to ignore your debt responsibility. Missing loan payments can hurt your credit score seriously, making it tougher to get a loan or credit in the future. Start by communicating with your lender right away. They may be able to extend some help in the form of reduced EMI payments or waived late fees.

Author Profile

Adam Regan: Deputy Editor

Features and account management. 3 years media experience. Previously covered features for online and print editions.

Email Adam@MarkMeets.com