Loan defaulter?

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Loan defaulter

Many a times, things in life don’t work out as per a plan and this could also include non-repayment of a loan as well. You probably do intend to pay off the loan on time, but when things don’t work out as per your plan, you end up defaulting on the payments. Though your reason for loan default could be anything-job change, wedding, illness or others. No matter what, defaulting on a loan can reduce your credit score that can further have an impact on your financial future.

First let’s understand what is loan default?

A loan default occurs when a customer repeatedly fails to make the EMI payments as per the loan schedule. Lenders notify you each month via email or SMS informing you about the EMI payment and date. Not paying off the EMIs on time can get you the defaulter tag and put your financial future at stake. If you miss out on making the payment once, then it is likely that you may not be charged any late payment charges. However, consistently not being able to pay the loan for more than 3 months can get you a defaulter notice from the creditor.

How nature of loan has an impact on default

Secured loan: For secured loan such as car loan, bike loan, loan against property or home loan, the lender has the legal right to take over the said property in case of repeated defaults. Since a secured loan is offered against a collateral, defaulting on the EMI payments transfers the right of ownership on the lenders name. And in case of loan availed against gold, insurance policy or investments, the lender can cover the loss incurred by selling off the assets in his possession. This type of loan gives the lender the right to sell off the assets in case of too many defaults. However, before doing so, the lender is liable to send a notice informing the borrower to pay off the debt within a specific period of time.

Unsecured loan: Credit card, personal loan is a type of unsecured loan that is provided without any collateral. Defaulting on this type of loan can lead to the following:

  • Additional charges: Not paying the loan EMIs on time can make you liable to pay additional fees and charges on your loan along with the EMI amount payable.
  • LOW CIBIL Score: Defaulting on an EMI payment can lead to low CIBIL score that can further have an impact on your financial future.
  • Collection agencies: Most lenders work in coordination with collection agencies who can send collection agents to your office or home to collect loan.
  • Legal notice by the lender: Some lenders would sue you in the court of law for not making payments. In this case, you would have to bear the late payment charges, EMI charges as well as the legal expenses.

How to rectify bad credit situation?

Don’t stress: Defaulting on a loan payment can stress you out. However, in such situations, it is best to be calm and figure out ways to get rid of the debt.

Speak to the lender: Few lenders are flexible with their default policies and in case of a genuine situation due to which you have made the default, the lender might negotiate the terms.

Refinancing: If you are unable to pay the monthly EMIs, then you choose to refinance the loan and opt for low EMI amount. However, this facility can only be availed in case you have a good credit score.

Conclusion

Always opt for a loan amount keeping in mind your monthly income and other expenses. Opt for a longer tenure as it attracts low EMI, whereas choosing a short tenure would increase your EMI amount. Also, when zeroing down on a lender, check on the interest rates along with repayment and late payment charges and read the agreement carefully.

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