Suppose you have already availed a personal loan to fund your emergency needs or for other reasons, with a tenure of close to 5 years. Considering the fact we are living in uncertain times due to covid, there may come a time when you cannot pay one of your EMIs because of unforeseen circumstances. One cannot stress enough how paying back your loans is essential in making sure you are not categorized as a risk-borrower by the bank. You will be termed as a defaulter if you do not make an EMI payment on the scheduled dates. An old age 'wish for the best but prepare for the worst' applies here as well. If you have taken an SBI personal loan or from another financial institution, it is imperative to know the consequences of defaulting on EMI payments on your personal loan and how you could prevent this from happening.
Lowers your creditworthiness
Do you know even missing one EMI payment of an SBI personal loan can drop your credit score by 50-70 points? Not just that, most lenders view the credit report of the borrower’s history of repayment pattern and payment defaults, if any, before lending them a loan. If you decide to opt for a personal loan or any other loan later in the future and the previous bank has categorized you as a risk-borrower, defaulting on EMIs can be one of the reasons behind your loan application rejection.
Charges and Penalties
SBI personal loans and other financial institutions providing Personal Loan in Delhi levy late fees as penalties on those individuals who have missed their EMI payments. It is usually around 1-2% of the EMI due amount, and other penalties add up to the outstanding loan balance. This makes the total payable amount much higher than what you owe in the first place.
Increase in the total loan amount
As you are going to delay paying your SBI Personal loan or any other Personal loan in Delhi you must have taken, the total amount payable will be bound to increase due to the additional interest/charges being levied on it.
Impacts your co-signer CIBIL score
Sometimes when you avail Personal loan in Delhi or from any other city in India, the bank might ask for a co-signer or guarantor if your credit score was low at the time of availing a loan. When you default on your SBI Personal loan EMIs, you will also be affecting their credit score as well.
As we have seen from the aforementioned points, how by defaulting on a personal loan, EMI can lead your credit score and creditworthiness to drop apart from causing financial implications. Here are a few methods to employ to avoid such situations from arising in the future.
Plan it better
Most of the time, it is the borrower's inability to plan their expenses that leads them to default on their EMIs. To ensure you don't end up defaulting on your SBI Personal loan EMIs, plan out your finances more efficiently and cut back where it is needed.
If needed, request a lower EMI.
Due to unforeseen circumstances brought on by medical expenses or job loss, it might be difficult for a borrower to continue paying their EMI. In such cases, it is suggested the borrower should approach the bank and inform them of their current circumstances. In most cases, banks lower the EMI by either converting an unsecured loan into a secured loan or giving an extension of the existing loan tenure.
Opt for part payments
Part payments are one of the best ways to lower the burden of EMI payments and interest rates. If you are involved in a business where you receive surplus funds, use those funds to make part payment of your loan.
Follow the 50-50 rule.
To be able to pay your personal loan EMIs requires the borrower to be financially disciplined. This means evaluating your personal loan repayments and interest rate beforehand and never going for an EMI that is more than 50% of your monthly income.
Start maintaining an emergency fund.
Many times one defaults on their personal loan EMI is because of the occurrence of unforeseen circumstances. To ensure you have enough funds to fund your emergency need during active personal loan tenure, you must have an emergency fund to dip into during a financial crisis. Ideally, the emergency fund must hold around six months of your salary. This way, you won't default on your SBI Personal loan EMIs or any personal loan in Delhi you have taken if something unexpected happens.
Ask for financial assistance from your friends and family
If such a situation arises where you couldn't be able to pay your monthly EMIs, approach your close friends and family members for an interest-free loan to help you repay the EMIs. This way, your credit score won't be affected, and your creditworthiness in the eyes of the bank will also be maintained.
Defer paying EMI
If you have defaulted on your EMI for one month due to genuine reasons but think you will be able to pay collectively after a few months, approach your bank and state your circumstances. Most of the providers of personal loans in Delhi may agree and allow you to pay your EMI in the following months, but you will be charged with a late payment fee. They may also give you an option to only pay the interest for a couple of months.
The consequences can possibly be two-fold: financial as well as reputational. From a financial perspective, you will be charged with late fees, penalties, and other charges. The reputational damage is even worse. A single default can bring down your credit score significantly. What's more, it could make you ineligible for further credit. In case you couldn't pay your EMIs due to genuine financial difficulties, reach out to your lender to find a solution and they might either lower your EMIs by extending the tenue or provide you with EMI free tenure for a brief period until your current financial troubles improve. Do remember, a borrower's track record in repayment plays a significant role in determining their future loan eligibility.