Know Your Rights & What Happens When the Borrower Fails to Repay the Loan?

Loans are very popular with borrowers in India as they help individuals to meet all kinds of personal needs. In India, banks and non-banking financial companies (NBFCs) offer a variety of loan products such as personal loans, home loans, car loans, two-wheeler loans, etc. The banks and other lenders in India generally provide a good amount of time to their customers to settle the loan in a timely manner. So, if you have taken a home loan or personal loan, it is important that you ensure that you repay the loan amount on time.

What Happens When You Miss the First Few EMI Payments?

Looking to know what happens if personal loan EMI is not paid? If you fail to make the installment payment of your loan for the first time, the lenders usually do not make too much fuss about it. They do not bother you much if you miss your first EMI. However, if you miss your second EMI as well and have not paid the first one, the lender will send you a reminder. If you still fail to pay three consecutive EMIs in a row, the lender then proceeds to treat the loan as a non-performing asset.

When the Lender Can Take Legal Actions?

Read more to know the punishment for non-payment of personal loan. Even after you miss the first few payments, the lender will still be ready to give you more time for paying the loan EMIs. They will send you more reminders through emails, text messages, or calls. However, if you delay and do not pay the EMI after the reminder has been sent, the lender has no option but to take legal action such as trigger “The Securitization and reconstruction of financial assets and Enforcement of Security Interest act’2002” (SARFAESI)” Act (mainly in case of home loans).

Once this act is brought into force by the bank, it will send you a legal notice asking you to clear the dues. The bank gives you a period of 60 days during which you can clear the dues and save yourself from any legal liabilities. However, if you fail to clear the dues within five months that is the first three EMIs which you failed to pay and the period of two months during which you had to clear your dues, the bank has all the rights to carry out the legal course of action it deems fit.

Defaulting on Secured Loans

In the case of secured loans, you have to pledge an asset as collateral to avail of the loan. The collateral can be anything of tangible value such as jewelry, your real estate property, and so on. When you fail to pay the EMIs on time, the bank will decide to sell or auction the collateral and send you a letter regarding the date of sale or auction.

The bank itself does not like to go through the hassle of carrying out an auction and selling your property so that it can cover the loan amount it had allowed you to avail from them. The auction can get averted if you decide to settle the dues even after the letter has been sent to you. Once the bank receives the EMIs due to be paid by you, they will cancel the auction and not sell your property which you had pledged to the bank as collateral.

Defaulting on Loan and Credit Score

When you fail to pay off the borrowed amount, the lender will report your loan account as a non-performing asset (NPA) to the credit bureaus. This will severely affect your credit history and bring down your credit score as well. Also, you will find it very difficult to get a credit card, personal loan, home loan, or any other kind of loan from any banks or financial institutions in the future. Hence, it is advisable that you try all means possible to pay off your loan.