What if you break the lender’s trust and default on a loan?

These days, if you are facing a financial crunch, it’s pretty easy to get a personal loan. Lender apps, e-KYC, hassle-free documentation, and seemingly affordable interest rates, make it a walk in the park. This ease has also lent itself to folks struggling with too much debt and defaults.

Be it their high credit card limit utilization, or other personal loans, including buy now pay later schemes, consumption-oriented debt is rising everywhere.

This credit pill can sometimes become a nightmare when it’s time for repayment, especially when you live paycheck to paycheck.

What if you suddenly lose your job or face a medical emergency?

Most people borrow due to an increasingly consumption-oriented lifestyle and the ease of getting money with a few taps. Easy money has somewhat diminished the feeling of responsibility that used to come with taking a loan. The responsibility and the obligation of paying it back. With Interest!

Borrowers should be acutely aware of their obligations, and should not indulge in any wilfully negligent behavior that can affect their credit standing.

It is not that the borrowers can easily forget their repayment schedule. Lenders these days make sure that the borrowers are well aware of their repayment dates and communicate with them on multiple channels, including on the phone, through texts, WhatsApp, and emails. They also send warning messages once a default happens and nudge the borrower to repay as soon as possible. Unfortunately, many defaulters wilfully ignore these reminders and warnings.

However, borrowers must remember that besides the impact on their credit score, there can be other serious consequences due to their poor repayment behavior. Let’s take a look at what happens when you don’t pay back on time despite repeated reminders and warning messages.

1) Severe Dip in Credit Scores

Your repayment behavior is the single most important parameter in your credit score. Even a relatively small delay (up to 30 days) in scheduled repayment can affect your credit score because lenders report such delays to the credit bureaus. If you are in a state of default for more than 90 days, your loan becomes an NPA for the lender. This can affect your credit score permanently. A bad credit score makes you a bad bet for a lender, and can also affect your job prospects with companies checking a candidate’s credit history during their pre-hire checks.

2) Reduced borrowing ability in the future

Your credit scores play a critical role in your ability to borrow from financial institutions. You may think that you will get away with defaults, but you won’t! Your ability to borrow in the future would be severely limited if it manages to exist at all. When you desperately need a loan, you may not be able to get it.

3) Relentless pursuit by Collection Agencies

Now, who wants relentless calls by collection agents? If the delay in your repayments has crossed a certain time frame, usually more than 30 days, you can expect calls and messages from collection agencies authorized by lenders to collect on their behalf. Collection agents may call you at inconvenient times. They can also land at your doorstep to collect your overdue. In some cases, they can seize certain assets financed by the loan you have defaulted on.

4) Legal Action

A persistent state of default, typically after the loan has been declared an NPA (skipped payment for more than 90 days), can invite legal action. It does not matter if a loan is secured or unsecured because an unsecured loan does not do away with your obligation of repayment to the lender. If the lender decides to take legal recourse, you could receive legal notices, summons, and court proceedings initiated against you. The resultant quagmire can trap you for a long time and can be an additional financial and mental burden.

It is, therefore, strictly in your interest, to be timely with your loan repayments.