Skipped A Loan EMI? Here's How It Could Impact Your Credit Score and Wallet

The household debt in India, recently went up to 42.9% of the country's GDP (at current prices) by the end of June 2024, which marks a rise as compared to 37.6% in March 2023. This is an indication for the fact that Indian families took on more debt during this period.

According to data from the Reserve Bank of India's Financial Stability Report from December 2024, the household debt is steadily increasing across India, and along with it loan defaults are becoming far more common.

The central bank has urged borrowers to stay alert and adopt responsible borrowing habits to avoid falling into deeper financial trouble.

Here are five major outcomes of missing your personal loan EMI:

Credit Score Damage: If you miss an EMI, it can reduce your credit score by 50 to 70 points. This drop can make it harder to get new loans or credit cards, and may result in higher interest rates in the future. A lower credit score reflects poorly on your financial discipline.

Penalty Fee & Extra Interest: Banks and non-banking financial companies (NBFCs) usually charge a late fee of 1-2% of the EMI amount in case a borrower misses a payment. Additionally, lenders can also apply penal  interest on the overdue amount. So the longer you delay your payment, the more you end up owing.

Minor To Major Default: If you are a borrower and you fail to pay your EMIs for under 90 days, it is treated as a minor default. However, after 90 days, the loan becomes a non-performing asset (NPA). After this it will be flagged by both credit bureaus as well as lenders.

Recovery Agents And Legal Action: After two months of missed payments, recovery agents may start contacting the borrowers and in case payments are still not made they may take legal action under the Negotiable Instruments Act of 1881. This can include court proceedings and more aggressive recovery efforts.

Reduced Future Borrowing: Missed payments and a low credit score makes borrowing again a less likely possibility. As personal loan defaults are still high, especially in private banks, lenders may only offer loans at high interest rates and strict terms.

Also Read: EPFO Hikes Auto-Settlement Limit For PF Advance Claims: Now Get Up To Rs 5 Lakh Without Waiting - Details