What Happens if You Don
Published on : August 18, 2023

Personal loans are unsecured loans, meaning that borrowers don’t need to put up any collateral in order to get one. Nevertheless, loan defaulters can face severe consequences, including legal action. In this article, we’ll go over some of the possible consequences of not repaying your debt. We will also cover the consequences of not repaying personal loans in India, how to prevent them, and what to do if you get into financial difficulties due to your loan.

Consequences of Non-Repayment of Personal Loan

Higher Debt Burden

Compared to lump-sum payments, EMIs are a more appropriate loan repayment option. However, if you miss an EMI payment, your liabilities grow. You may have to pay the entire sum, including any late payment fees, within the tenure’s remaining time. As a result, your financial load will increase.

Credit Score Damage

Your chances of getting a loan are better if you have a high credit score. However, skipping an EMI payment on your personal loan could reduce your credit score by 50 to 70 points, which could affect your capacity to borrow money in the future.

Legal Action

If you miss more than 180 days of your EMI payments, lenders may file a lawsuit. Under Section 138 of the Negotiable Instruments Act of 1881, the lender has the authority to sue you and get their money back.  Additionally, the lender may file criminal charges against you under Sections 403 and 415 of the IPC, 1860, if you declare that you are a wilful defaulter. Following the adoption of the Insolvency and Bankruptcy Code in 2016, lenders could take legal action against borrowers who didn’t pay back their loans. This indicated that even borrowers were more shielded from legal action. By increasing regulations, the RBI also made it more challenging to get personal loans.

Having Trouble Getting a New Loan

Banks report EMI defaults to credit bureaus. There won’t be a problem if you have cleared your default payment before a specific period of days. If not, the lender will notify credit bureaus that your credit has been “written off.” It will make it tough for you to get fresh loans because it will make your credit history look bad.

Rights of a Borrower

Several rights are reserved for the borrower when you choose a personal loan. Some of your rights as a borrower are listed here.

  • Right To Get Proper Notice – In the event that you fail to make your EMI payments, it is the duty of a lender to notify you of your obligations. You can ask a bank to give you enough notice so that you can pay your dues. Additionally, the lender must provide you with a notice at least seven days before the start of the proceedings if he / she wants to start a recovery procedure against you.
  • Right To Decide Terms of Contact – You can specify where and when you want the lender to get in touch with you. The lender is only permitted to contact you from 7:00 a.m. to 7:00 p.m. every day. It implies that a bank cannot call you at any time and cause you inconvenience. As a result, a lender cannot object if you ask them not to call you at a specific time.
  • Right To Be Treated Politely – It’s against the law for lenders to disclose information about your unpaid EMI to third parties. They must uphold your privacy by maintaining a copy of your default information among their staff. Additionally, you have the legal right to file a criminal complaint if a  representative behaves improperly towards you, such as by yelling, using foul language, physically intimidating you, or violently assaulting you.

How to Avoid Defaulting on Your Personal Loan Payments

While the borrower has certain rights in case of a default, as mentioned above, it is nevertheless a highly undesirable situation to enter into. With some wise financial planning, you can quite easily set yourself up so that you won’t need to be in a situation where you default. Here are some things you can do:

Set up an emergency fund

Setting up an emergency fund is a wise financial decision from every angle, not just to help you keep up with payments. If you set up a sizable emergency fund, you may not need to worry about taking out a loan at all, in which case there is no chance of defaulting on any payments.

Get a grip on your financial situation

You need to keep a close track of your income and expenses, down to the last rupee. There are countless apps you can use to do this. Keeping track like this will let you know how much of your money is going towards what. When people start doing this for the first time, they invariably come across a lot of avoidable expenses, and these often add up to significant sums of money. Make sure to reduce or eliminate such expenses.

By doing these two things, you’ll be in a position where you’ll have a significant amount of money piled up sooner than you think. You may not need a loan at all, or if you do, you’ll be in a position to repay it without much risk of a default. You might even be able to repay the loan before maturity, thus saving on interest costs.


A personal loan default can have severe repercussions. The lender could file a lawsuit against you, resulting in financial fines, lowered credit scores, and even possible asset confiscation. Your future borrowing options are also impacted by non-payment because lenders can see you as a high-risk borrower. It is crucial to communicate with the lender if you are having difficulty repaying the loan, as they may be able to offer alternatives such as restructuring or forbearance. Ultimately, honouring your financial obligations and maintaining open lines of communication are key to avoiding the negative consequences of not repaying a personal loan.