Taking out loans today is an extremely common practice today. And personal loans help us cover a variety of expenses that we couldn’t otherwise afford. Starting from buying a house to renovating your home, you can get a personal loan for every possible situation provided you meet the required eligibility criteria, submit the necessary documents and also have an idea of when and how you will repay the loan. Personal loans are a great option for availing of instant cash when you have a tight budget, but they can be stressful if you don’t repay them within the stipulated period of time. Before taking out a personal loan, you must be confident that you will be able to repay it or else it might lead to legal consequences, which might affect your repayment track record, creating an issue the next time you want to take out a personal loan.
There often come situations where you have a hard time paying back the loan, and you keep on missing one payment after the other and sooner than you realize, you will get the title of a personal loan defaulter. So, it’s important to know how personal loan defaults can affect your credit score and financial health. This article will help you understand the consequences that might happen in case you default on a personal loan.
Your Credit Score Gets Affected
First things first, The moment you default a personal loan payment, you must know that your credit score is impacted directly. It is so badly affected that you stand chances of losing as much as 110 points straight away. As the lenders update your repayment history to credit bureaus on a regular basis, it is of utmost importance to build your credit score in the best possible way and also maintain it. The credit bureaus, such as CIBIL, use this information to update your credit score. And once your credit score dips low, it can be a tedious task to build it up again.
Legal Action
When you default on a loan, your lender may resort to taking legal action against you to get the money back. According to rules, you are liable for legal action if you default on loan repayment by 18 days. Lenders can file you under the 138 section of the Negotiable Instrument Act 1881. Moreover, if it is found that you are not paying back your loan intentionally, the lender has the right to press criminal charges against you under sections 403 and 415 of the Indian Penal Code, 1860.
Difficulty in Availing New loans
Now, this is quite obvious. If you couldn’t repay your previous loans, the lender will be sceptical about giving you a new loan. Moreover, if your loan repayment is left due for more than 180 days, lenders mark your credit status as “written-off” when sending it to the credit bureau. So, quite evidently, availing a new loan with this status can be a lot difficult due to the negative status.
Ways to clear up your personal loan debt
Along with knowing all the consequences of defaulting the personal loan payment, you must also be aware of the ways you can clear it up. Some of the useful ways to clear up your personal loan debt are:
- Chalk out a payment plan with the lender
- You may also consider taking a debt consolidation loan
- Leverage the equity in your home
Final Thoughts
Though there are ways you clear up your personal loan debt, it is advisable not to fall into this debt in the first place as it can affect your financial health badly, and you might face problems in availing a loan later in the future when there’s an urgent need for it. Hence, before availing of a personal loan, chalk out every minute detail, such as the amount of loan you are willing to take, the repayment terms and periods. Make use of the personal loan EMI calculator; it’ll help you figure things out. One of the best loan apps you can consider for getting a personal loan is PaySense.
