What Happens If Personal Loan EMI Is Not Paid? Complete Details.

What Happens if You Miss an Instalment of Your Loan?

EMIs or equated monthly instalments are the monthly payments made during a loan tenure.
The actual instalment amount is calculated based on the type of loan, tenure, loan amount, and interest among other factors.
Every borrower gets ample information about the EMIs to be paid right when the loan is sanctioned.
But some might find themselves in a situation where they cannot pay one or more EMIs.
Not paying several instalments leads to the accumulation of debts, and this can have long-term impacts.
But people often do not talk about single EMI delays.
Not paying a single EMI might not necessarily crash your credit score, but it does have its impacts.

There Are Penalties

The most direct impact of missing an EMI is to bear a penalty.
Depending on the loan and the lending agency, the late fee or penalty for delayed instalments varies.
These are defined as a small percentage of your loan amount, and so it would be a significant addition to your instalment.
You would not only have a history of bad credit added to your credit performance but you will also be paying extra when you repay the missed instalment.
Instead of this additional financial burden, it would be better to stick with timely loan EMI payments.

Impact On Your Credit Score

Credit score could be known by different names in different regions.
But this is one parameter that can have a huge impact on your loan approval rate.
Even the interest of your loan can be negotiated on the grounds of your credit score.
It is, therefore, imperative to maintain a good credit score at all times.
Among the many critical factors that can affect your credit score negatively, a missed loan instalment is one.
A credit score is a measure of your credit performance or creditworthiness.
It talks about your ability to repay loans on time.
So, delayed payments, even if it is just one EMI, can bring down your credit score.
The weightage that different lending institutions give to single missed instalments might vary.
But with standard banks and lending agencies, you might later face loan approval glitches when you do not pay an EMI.
Credit card providers might also react by reducing the credit limit allotted in your account if there are delayed EMIs.

Defaulting Types And Consequences

There are predefined periods set aside by financial institutions.
In many places, there are 90 days allotted for the correction of delays.
If you do not pay the loan EMI within the monthly repayment date but manage to repay the amount within 90 days, it would be termed as a minor default of the loan.
For long term loans, you can easily make regular payments in the future and make up for minor defaults.
But if you do not repay the said EMI within 90 days, it falls under the category of a major default.
Such borrowers might find it difficult to get loan approvals in the future as most credible lending institutions reject applicants with a history of major defaults.
Accounts that have a history of major defaults are labeled as “non-performing assets”.

Debt Collection Agencies Can Be Difficult To Handle

Depending on the tenure and the lender, there could be times when debt collection agencies are involved in getting the instalment on time.
These institutes are often difficult to handle, and they do not always have the easiest ways in extracting the delayed EMIs.
To avoid bitter calls and other consequences when debt collection firms are involved, it is better to pay EMIs on time.

What can you do if you already have missed paying an EMI?

“Goodwill adjustment” is the term used for negotiation based correction of the credit performance done by the lender.
If it is only a few days that have lapsed, if you have missed the repayment by mistake, you can talk to the lender.
If you have been maintaining a good credit score till date and if your EMIs have all been paid on time, your lender might consider striking off the traces of delay in your EMI payment.
This can ensure that your credit score is not affected due to the delay.
Sometimes it is possible to make partial repayment of the outstanding amount.
Another option is to opt for auto-debit of the loan amount as the corrective action in exchange for erasing the history of delayed instalment.

How To Evaluate The Damage Done?

There are times when you assume that you have made the payments, but unprecedented delays might lead to the instalment amount being credited past the EMI date.
Unless you keep a close watch on your loan account, such details might be missed.
To be sure that you do not have a history of defaulted repayments, you should check your credit performance.
Your credit report would give you a timely warning about the impact of delayed or missed instalments and therefore, help you in taking corrective actions quickly.

Loan Moratorium

Loan moratorium is a concept that recently popped up with the financial crisis making it difficult for various borrowers to repay their loans.
This allows skipping a few instalments as defined by the respective banks.
But remember that even if you choose a moratorium, the loan interest adds up and it can make future loan repayments difficult.
Unless you have to, avoid skipping loan instalments even if the banks allow legal moratorium arrangements.

Tips to ensure that you do not miss your EMIs

Nothing can be done about those EMIs you miss because of the shortage of funds.
But there are EMIs that are missed because you forget the timelines.
There are several ways in which you can prevent such delays in EMI payments and thus preserve your credit performance.

Automate Your Payments

This is the most reliable way to ensure that not a single EMI is delayed.
Make sure that you continue to maintain enough funds in your linked account so that when the auto-debit happens, there is no shortage.
Several loan accounts allow the option of linking a bank account for automatic EMI debit.
So you do not have to worry about forgetting the EMI payment date.

Choose A Tenure And Payment Schedule That Works For You

When you choose the loan, you should take into account your monthly expenses and work on the most suitable EMI amount you can afford.
Ensure that you consider both fixed and flexible expenses and pick a loan structure that you can handle without issues.
Often, it is the large EMIs that borrowers miss when they are in a financial crisis.
Unless you have the means, choose a long term repayment option with more comfortable monthly instalment amounts.

Remind Yourself To Check The Repayment Status

Even if you have auto-debit of loan instalment turned on, you should continuously monitor your loan account.
This would avoid unexpected errors in the automatic debiting process from affecting your credit performance.
You should talk to your lender about any such issues immediately.
If the difficulty in repayment occurs more than once, you should talk to your lender and work on other measures like loan refinancing or even consolidation of loans.
These can help you in creating long term changes to your EMI payment schedule so that missed payments do not burden you.

In Conclusion

So, what happens when you do not pay an EMI or a single instalment of your loan?
Remember that there could be nuances that vary based on the type of loan you choose.
Personal loans, for example, have more severe penalties and higher interest rates when it comes to delayed instalments.
So, you should work on effective ways to manage your funds so that you do not miss your instalments.
Once your income is credited, make sure that you set aside the essential funds for your monthly instalments before you make any other financial decision.

FAQs

Q- Does a single missed EMI impact my credit score?

Ans- Yes. Missed EMIs can negatively affect your credit score. Set reminders and pay your instalments on time to maintain a good credit score.

Q- Would my future loans be affected if I miss an EMI?

Ans- With one missed EMI you might not notice too much of an impact on future loans provided you work on ways to correct your credit. Make sure that you avoid the delay from turning into a major default.

Q- Can you make up for a missed instalment?

Ans- Yes. You can talk to your lender and work on ways to correct the credit impacts caused by delayed instalments.