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 at the time of crisis. But availing a quick loan is a serious financial commitment and you need to be very careful with your borrowings and repayments. While most of the 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 crisis or a personal crisis, missing out on your monthly installments is bad for your financial health. Since, a personal loan is an unsecured loan, it will not result in loss of your assets, but it 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 very first consequence of missing out the payment of on your monthly EMI on the due date would be penalty charges. Even if you are delayed by just a day, it will result in late fees and penalty charges. The penalty charges for missed EMIs is often too high, this will make your loan very costly. In case, there is a glitch on the lender’s end, you must get in touch with the lender and request them to make the corrections immediately.

Also, before availing the quick loan, you must check out the best loan apps that has reasonable charges on late payment or missed EMIs. Some app based lenders may also 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. They recovery department will start making you phone calls for checking on what is going on, informing you about missed payments, fines applicable and requesting you to make the payment at the earliest. As per guidelines from 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 be making you a number of calls during the day because of a failed update in the system. This becomes strenuous and bothersome to attend a number of calls and report the same things all over again. 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 of time, the lender may send recovery agents directly or through empaneled agencies to your home. Keep in mind that a loan agent can only visit you at specified times and at specified locations. They cannot intimidate you or physically threaten you. But having these people at your house is also stressful.

  • Civil suit for loan recovery

A lender can file a civil court case against you in case 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 with regard to future borrowing

Missed EMIs have lots of long term implications. Here are a few ways in which not paying 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 impact on your credit score. Did you know that missed payments can stay on your credit report for as long as seven years and can act as a deadweight keeping your credit score low? If you keep on missing payments frequently, you will end up losing points on your credit score so much that you will end of with bad credit score.
  • Only high interest rate loan availability: If you keep on 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 that they give to you.
  • Risk of future loan denial: If you keep on missing EMIs and if your credit score keeps on falling, a very big impact will come to your future ability to borrow. You will run a huge risk of loan denial. Conventional lenders relies only a credit score for loan decisions. Though the best loan app might offer you a loan but 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 in place before deciding to opt 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 personal crisis.

In addition to this, if you are having multiple loans, then you might consider consolidating your loans into one quick loan. This will simplify your payments, reduce monthly outflow and may even get you good interest rate. Make sure to invest your time to learn about the 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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