Widely popular, a personal loan is one of the easiest ways to finance everything from higher education or vehicle purchase to medical bills. Several banks and NBFCs offer personal loans in India at affordable interest rates and attract borrowers regularly. However, most personal loans involve substantial interest rates. This can become a problem for the borrower, and if unfortunately, their financial condition worsens, he might become a defaulter.
If you are one of those who are struggling to repay your personal loan, you might want to know the consequences of abandoning repayment altogether. Read on to learn more about the penalties associated with being a personal loan defaulter in India.
Effects of Repayment Failure
One of the most common effects of personal loan repayment failure is a penalty imposed by the lender. These can range from high fines and charges on successive EMIs to legal action against the borrower. Usually, legal action is taken on willful borrowers, i.e., the people who take the loan and refuse the pay the personal loan EMI deliberately despite having sufficient money. Such people are most often booked under Section 420 of the IPC.
Genuine defaulters, i.e., those who really cannot repay the loan due to sudden and unforeseen emergencies, cannot be lawfully harassed by the lender. At the same time, careless borrowers usually invite a monetary penalty.
- Reduced credit score
Credit scores area rating of your debt management history. The moment you fail to repay your personal loans, your credit scores takes a hit. Lenders regularly send repayment reports to CIBIL, which then assigns a score to the borrower depending on how good his debt management is. Even if you miss one EMI of your personal loan, your credit score will plummet. This will then make you ineligible for low-interest personal loans in the future and will also affect your eligibility for other types of loan.
- Liquidation of collateral
Personal loans in India are usually unsecured, but some lenders demand collateral when you borrow a significant amount. If you fail to repay your loan, the lender is authorized to seize your collateral and liquidate it to cover your loan.
- Use of post-dated cheques
Whenever you apply for a personal loan online or offline, your lender will ask you to submit some undated and signed cheques. If you become a personal loan defaulter, your bank will use these cheques for payment. If they are dishonoured, the bank will take legal action against you.
Whenever you feel like you are nearing such financial tragedy that you won’t be able to repay your loan, find out how to reduce EMI of personal loan using personal loan EMI calculator. Choosing an affordable and hassle-free loan offer is crucial to avoid being a defaulter.
Tata Capital’s low-interest personal loans are incredibly affordable and hassle-free. Moreover, our personal loans allow you plenty of flexibility in terms of repayment schedule and tenure. To avail of personal loans online, apply on our website or contact us to know more!