What Happens If You Fail to Pay Back a Personal Loan?

A personal loan is a financial tool designed to help you meet your financial needs during a crisis. But a quick loan is a serious financial commitment, and you must be very careful with your borrowings and repayments. While most people tend to pay off their dues on time, there may be cases where you find yourself in a tight spot. Whether it is a financial or personal crisis, missing out on your monthly installments is bad for your financial health. Since a personal loan is unsecured, it will not result in the loss of your assets but will impact your ability to avail finances in the future.

Personal Loan

Read on to discover the consequences of failing to repay your personal loan.

What happens if you fail to pay back your personal loan?

  • Heavy fines and late payment charges

The first consequence of missing your monthly EMI payment on the due date would be penalty charges. Even if you are delayed by a day, it will result in late fees and penalty charges. The penalty charges for missed EMIs areare often too high, making your loan very costly. In case of a glitch on the lender’s end, you must contact the lender and request them to make the corrections immediately.

Also, before availing of aof quick loan, you must check out the best loan apps with reasonable charges for late payment or missed EMIs. Some app-based lenders may waive off charges on a single instance of late payment. So, make sure to conduct your research diligently before choosing your lender.

  • Loan recovery calls

When you miss an installment on a personal loan, the lender will report your loan account to their in-house recovery department. The recovery department will start making your phone calls to check on what is going on, inform you about missed payments and fines applicable, and request you make the payment at the earliest. Per guidelines from the Reserve Bank of India, loan recovery agents are only allowed to call you between 8 am and 7pm. However, you can expect calls very frequently and from different numbers.

Sometimes, even after you clear all your dues, the loan recovery department might still make several calls during the day because of a failed update in the system. This becomes strenuous and bothersome to attend to several calls and report the same things repeatedly. You can avoid it all by being regular on your due payments.

  • Loan recovery agent visits

If your loan remains unpaid for a fixed period, the lender may send recovery agents directly or through empaneled agencies to your home. Remember that a loan agent can only visit you at specified times and at selected locations. But having these people at your house is also stressful. They cannot intimidate you or physically threaten you. They cannot scare you or physically threaten you.

  • A civil suit for loan recovery

A lender can file a civil court case against you if you default on your loan, but this is a last and very extreme case. It is rarely used because lenders do not want to enter into a long and costly legal process and would rather have their money back by discussions and settlement instead of having to go the way of the legal system.

Impact on future borrowing

Missed EMIs have lots of long-term implications. Here are a few ways in which not paying the loan on time can impact your future ability to borrow money,

  • Impact on your credit score: If you miss a loan EMI, the same goes on your credit profile and has a serious downward effect on your credit score. If you keep on missing costs frequently, you will lose points on your credit score so much that you will end up with a bad credit score. Did you know that missed payments can stay on your credit report for seven years and act as a deadweight keeping your credit score low?
  • Only high-interest-rate loan availability: If you keep missing personal loan EMIs, you will end up in a situation where you will only be able to get high-interest-rate loans. The lenders will notice the poor repayment history and start seeing your case as a high-risk borrower. They will balance this risk by levying high-interest rates on the loans they give you.
  • Risk of future loan denial: If you keep missing EMIs and your credit score keeps falling, your future borrowing ability will greatly impact you. You will run a huge risk of loan denial. Conventional lenders rely only on a credit score for loan decisions. Though the best loan app might offer you a loan, the interest rate would be very high.


Not being able to repay your loans is the worst financial position for anyone. It increases your payment load, impacts your credit score, and adds to your mental burden. That is why it is very important to have a proper repayment plan before opting for a personal loan. You must keep two to three months of EMIs in reserve to accommodate your payments in case of a job loss or emotional crisis.

In addition, if you have multiple loans, consolidate your loans into one quick loan. This will simplify your payments, reduce monthly outflow, and even get you a good interest rate. Make sure to invest your time learning about financial tools and be very careful with all your investments and debts.

Elizabeth R. Cournoyer

Web enthusiast. Internet fanatic. Music geek. Gamer. Reader. Hipster-friendly coffee practitioner. Spent 2001-2007 merchandising human hair in Fort Lauderdale, FL. Spent 2001-2007 short selling tinker toys in Fort Walton Beach, FL. Spent 2001-2007 importing acne in Phoenix, AZ. Spent several months importing methane in Mexico. Spent the better part of the 90's creating marketing channels for wooden horses in Bethesda, MD. Lead a team implementing toy monkeys in Deltona, FL.

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