What are the Consequences of Missing a Personal Loan EMI?
Personal loans can be useful when you need funds for various purposes like home renovation, medical emergencies, education, etc. However, like any other loan, it comes with a responsibility to repay it on time.
A personal loan EMI (Equated Monthly Instalment) is the amount you must pay every month until the loan is fully paid off. Missing a personal loan EMI can have serious consequences. This article will discuss the consequences of missing a personal loan EMI.
Consequences of Missing a Personal Loan EMI
Late Payment Fees
When you miss a personal loan EMI, the lender will charge you a late payment fee. The late payment fee varies from lender to lender but is usually a percentage of the outstanding EMI. Depending on the lender’s policy, this fee can range from 1% to 3% of the EMI amount. So, if you miss an EMI of Rs.10,000, you may have to pay an additional Rs.100 to Rs.300 as late payment fees.
Lower Credit Score
When you miss a personal loan EMI, for example, for an ICICI bank home loan, or even for personal loans, it will reflect on your credit report, impacting your credit score negatively. The credit score is an important factor in determining your creditworthiness and ability to get a loan or credit card in the future.
Missing an EMI indicates to the lenders that you cannot manage your finances effectively. As a result, your credit score may drop, making it difficult for you to get credit in the future.
If you continue to miss EMI payments, the lender may take legal action against you. The lender may send you legal notices or bring legal action to recover the loan amount. In extreme cases, the lender may even initiate recovery proceedings, which can lead to the attachment of your assets or property. Legal action can also lead to additional expenses like legal fees, making the loan more expensive.
Difficulty in Getting Loans in the Future
When you miss a personal loan EMI, it affects your credit score negatively, making it difficult for you to get loans in the future. Most lenders consider credit score one of the most important factors when approving a loan application. If your credit score is low due to missed EMI payments, lenders may view you as a risky borrower and may reject your loan application.
- Impact on Co-Borrower/Co-signer
If you have taken a personal loan with a co-borrower or co-signer, missing an EMI payment can also impact your credit score. When you take a loan with a co-borrower or co-signer, both of your credit scores are considered. If you miss an EMI payment, it will reflect on both of your credit reports, which can also impact your credit score negatively.
Accumulation of Interest
When you miss an EMI payment, the outstanding loan amount remains unpaid, which attracts interest. The interest accumulates on the outstanding amount until the payment is made. As a result, missing an EMI payment can make the loan more expensive, as you will have to pay the outstanding EMI amount and the interest accumulated on it.
Missing a personal loan EMI can have serious consequences, including late payment fees, lower credit score, legal action, difficulty in getting loans in the future, impact on co-borrower/co-signer, and accumulation of interest. Therefore, it is important to make timely EMI payments to avoid these consequences.
If you cannot make the payment due to financial constraints, it is advisable to inform the lender and discuss the available options. Most lenders offer a grace period and may be willing to work out a payment plan or reschedule the payment to help you manage your finances better.
Taking a personal loan comes with a responsibility to make timely EMI payments. Missing an EMI payment can have serious financial, legal, and credit-related consequences. Therefore, planning your finances and making timely EMI payments are important to avoid these consequences. If you are facing financial difficulties, it is advisable to seek help from the lender and discuss the available options to avoid missing EMI payments.