What happens if you default on your personal loan?

Personal loans are an appealing option for people who are in severe need of money in a hurry. They are commonly available as unsecured loans and debt with little loan amount constraints. It is critical to pay your bills on time, and each lender has its unique set of terms and circumstances when it comes to personal loan nonpayment. You may suffer consequences if you fail to make a scheduled payment on one of your instant personal loans.

So, what if you make a mistake? Understanding how a personal loan apply default affects you, your credit, and your life is crucial.


Defaulter is an individual who does not pay his EMIs on time. Keep in mind, however, that some loan providers offer a ‘grace period’ that begins the day after your EMI is due. To avoid being called a ‘defaulter,’ you may be charged a ‘late payment’ penalty if you make your loan payment during the grace period. If you miss one EMI payment, you are not considered a defaulter. 


  • You will have a problem with your co-signer or guarantor. Late payments affect the credit scores of the co-signer also. In addition, the lender and collection agencies will contact them in an attempt to recover the loan amount.
  • Your financial burden grows. Late fees, fines, and legal fees, among other things, add up to a debt that is significantly greater than what you owe.
  • Banks and non-bank financial institutions (NBFIs) may file a lawsuit against the borrower. If banks and NBFCs are unable to recover the loan amount, legal action may be taken.
  • It has an effect on your credit rating. The financial institutions record the late payments and report it to credit monitoring companies such as CIBIL and Equifax. This affects your CIBIL score badly and negatively. You cannot avail a credit card or any debt with a low credit score.


Not all debtors are wilfully oblivious to their obligations. Some genuine defaulters may have had real hardships as a result of which they were unable to repay the personal loan. Defaulters have special rights that the lender must respect and that are guaranteed by law.

The lender must provide proper notice to the defaulter. Typically, the lender should provide the borrower a 60-day grace period to pay off the debt. Customers are not allowed to be beaten or mistreated by bank-appointed recovery agents. Banks have committed to best practices as part of their code of customer commitment in response to the RBI’s instruction.

Because the Grievance Committee determines who is a willful defaulter, banks are unable to name any defaulter as such.

The Bottom Line

Defaulting a loan is not good for your financial portfolio. You should always try to handle the situation with care and an active mind. For example, you could go to the lender and explain your current circumstances. You could ask for more time to repay or modify the specific loan. You can talk to your lender about extending the instant personal loan term and lowering the personal loan EMI calculator cost. This can help to reduce the loan load and make debt repayment easier. In the worst-case scenario, you can ask the bank for a settlement. It means you’re planning to pay off a chunk of your debt. While it may give financial relief, it has the potential to negatively impact your credit score. To obtain future credit, the outstanding sum must be paid.

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