Borrowing a loan is a serious financial obligation. Thus, you must know the full extent of your actions beforehand. Regardless of your diligence when it comes to borrowing, financial emergencies tend to show up unannounced and may get the best of you. In such an instance, certain personal loan defaulter consequences can be averted as long as there is a discourse between you and the lender.
Further, recognising when things are going downhill can help you resolve at the right time to avoid damage to your finances and credit score. Take a look at what you must watch out for and what can happen if you default on a personal loan.
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The warning signs to watch out for personal loan default
Lender issues a notification
Lenders typically issue a notification after the first or second missed payment. Some lenders may have already had an agent call or message you on your registered phone number asking you to make payments. Post this; the lender may issue a default notice document stating the cashing in of post-dated cheques if there is no response from your end.
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Lender opens the door to negotiations
When your lender initiates this kind of contact, you can approach your lender to solve your problem. If you're a genuine defaulter, i.e. your reason for defaulting is unavoidable and unfortunate, your lender might even choose to halt your EMIs or reduce the amount temporarily. However, you need to ensure that this approach is a priority as the next step could severely affect you.
Additional Read: Managing Personal Loan default
Submission of post-dated cheques
Suppose you ignore the notices and do not approach the lender to look for a solution. The lender will then send you a notice stating that your post-dated cheques will be presented to the bank on a particular date. You must ensure that there is enough balance in the account for the cheque to go through. As per the RBI guidelines for personal loan defaulters, you can be charged as a criminal if your cheques bounce, as stated under section 138 of the Negotiable Instruments Act of 1881.
The consequences of a personal loan default
If there is no resolution, you will have to face the personal loan defaulter's punishment in India. As this is an unsecured loan, you will be placed on a loan defaulters list.
What is the punishment or legal action against personal loan defaulters for non-payment of loan in India?
Legal action against personal loan defaulters in India involves a civil lawsuit.
- Lenders can file a case in a civil court seeking repayment.
- Defaulters may face asset seizure or wage garnishment.
- Negotiation and settlement options may be explored before legal recourse.
- This will also reflect on your credit history and severely affect your ability to secure loans in the future.
- Furthermore, you may also be booked under section 420 of the Indian Penal Code, which involves imprisonment.
RBI guidelines for personal loan defaulters
- RBI mandates fair practices in debt recovery for personal loans.
- Lenders must adhere to RBI guidelines during loan default cases.
- Borrowers are entitled to receive a notice before initiating recovery.
- Communication must be respectful, avoiding harassment.
- Recovery agents must follow the RBI's Code of Conduct.
How to get back on track after being a personal loan defaulter for 10 years?
To recover after a 10-year personal loan default follow the below steps:
- Assess outstanding debt and create a repayment plan.
- Communicate with the lender, negotiate terms, and seek a settlement.
- Rebuild credit by making timely payments and managing finances responsibly.
- Consider financial counselling for budgeting and debt management.
- Explore debt consolidation options for easier repayment.
It is best to have an emergency fund to stay afloat to avoid all these personal loan default consequences in India. Alternatively, you can negotiate with your lender about closing your loan altogether in exchange for a part-prepayment. This method is called a haircut and is only employed as a last resort.
Additional Read: What happens when you fail to repay a loan
To reduce your chances of a loan default right from the start of your borrowing journey, consider applying with a lender that makes repayment easy.For instance, when you opt for a personal loan, you can avail of nominal personal loan interest rates and a flexible tenure to match your repayment capabilities. This will help you keep your EMIs as low as possible, allowing you to make payments even in times of emergencies.
You can even avail of the Flexi Personal Loan and reduce your EMIs up to 45% by paying interest-only EMIs and paying off the principal at the end of the tenor. This way, you can better manage your cash flow and reduce the risk of default. You can also consider using our personal loan EMI calculator to calculate your EMIs beforehand and manage your expenses wisely.
Most importantly, you can check your pre-approved offer to avail of a customised loan deal that reduces your chances of default with a tailored offering to meet your financial needs and suit your repayment potential.
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