What Are the Legal Consequences of Personal Loan Default in India?

What Are the Legal Consequences of Personal Loan Default in India?

Here's what happens when you are unable to repay your personal loan in time and what are the RBI guidelines for personal loan defaulters in India.

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A personal loan defaulter is someone who fails to repay their loan on time, and being a personal loan defaulter for 10 years can have serious financial and legal consequences. Life events like job loss, medical emergencies, or unexpected expenses can lead to delayed repayments or personal loan default.


For loan defaulters in India, failing to repay can impact credit scores and invite lender actions. Personal loan defaulter legal action may include notices, recovery procedures, or settlements, all regulated under RBI guidelines to ensure fair and transparent recovery.


If you face repayment difficulties, it is crucial to communicate with your lender promptly. Discussing options like restructuring the loan or negotiating settlements can help prevent long-term financial damage and maintain your creditworthiness.

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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.

  • 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.

  • 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.

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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.
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Importance of repaying personal loan on time.

Repaying a personal loan on time is crucial for financial stability and credibility. Timely repayments positively impact your credit score, making it easier to access credit in the future at lower interest rates. However, if you become a loan defaulter in India, the consequences can be significant—ranging from loan rejection to legal notices and a lasting dent on your credit profile.


For individuals seeking an urgent loan for CIBIL defaulters, options are limited, and terms are often stricter. This highlights why staying consistent with repayments is vital. Being tagged as a personal loan for CIBIL defaulter not only reduces your chances of getting fresh credit but also affects your financial confidence.


By honouring your EMIs on time, you avoid late fees, maintain lender trust, and promote financial discipline. Timely repayment also secures your eligibility for top-up loans or future borrowings. In the long run, it safeguards your financial freedom and ensures peace of mind.


Related Links:

Difference Between Repo Rate Vs Reverse Repo RateHow a CO-Borrower can Increase your Personal Loan Eligibility?
Managing Personal Loan defaultWhat happens when you Fail to Repay a Loan


 

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Key offerings: 3 loan types

Personal loan interest rate and applicable charges

Type of fee

Applicable charges

Rate of Interest per annum

10% to 31% p.a.

Processing fees

Up to 3.93% of the loan amount (inclusive of applicable taxes).

Flexi Facility Charge

Term Loan – Not applicable

Flexi variant - A fee will be deducted upfront from the loan amount (as applicable below)

  • Up to Rs. 1,999/- for loan amount less than Rs. 2,00,000
  • Up to Rs. 3,999/- for loan amount from Rs. 2,00,000 to Rs. 3,99,999
  • Up to Rs. 5,999/- for loan amount from Rs. 4,00,000 to Rs. 5,99,999
  • Up to Rs. 7,999/- for loan amount from Rs. 6,00,000 to Rs. 9,99,999
  • Up to Rs. 8,999/- for loan amount from Rs. 10,00,000 to Rs. 14,99,999
  • Up to Rs. 9,999/- for loan amount from Rs. 15,00,000 to Rs. 19,99,999
  • Up to Rs. 10,999/- for loan amount from Rs. 20,00,000 to Rs. 24,99,999
  • Up to Rs. 11,999/- for loan amount from Rs. 25,00,000 to Rs. 29,99,999
  • Up to Rs. 12,999/- for loan amount of Rs. 30,00,000 and above

*All the Flexi facility charges above are inclusive of applicable taxes

*Loan amount includes approved loan amount, insurance premium, and VAS charges.

Principal Holiday Facility Fees
  • Up to Rs.1999/- for loan amount less than Rs.2,00,000
  • Up to Rs.3999/- for loan amount from Rs. 200000 to Rs.399999
  • Up to Rs.5999/- for loan amount from Rs. 400000 to Rs.599999
  • Up to Rs.7,999/- for loan amount from Rs. 600000 to Rs.999999
  • Up to Rs.8,999/- for loan amount from Rs.10,00,000 to Rs. 1499999
  • Up to Rs. 9999/- for loan amount from Rs. 15,00,000 to Rs.19,99999
  • Up to Rs.10,999/- for loan amount from RS. 20,00,000 to RS.2499999
  • Up to Rs.11,999/- for loan amount from RS.25,00,000 to RS. 29,99999
  • Up to Rs. 12,999/- for loan amount of Rs.30,00,000 and above

Above charges are inclusive of applicable taxes & will be deducted upfront from loan amount

*(Loan amount includes approved loan amount, Insurance Premium & VAS Charges)

Bounce charges

Up to Rs. 1,200 per bounce.
“Bounce charges” shall mean charges for (i) dishonour of any payment instrument; or (ii) non-payment of instalment (s) on their respective due dates due to dishonour of payment mandate or non-registration of the payment mandate or any other reason

Pre-payment charges

Full pre-payment

  • Term Loan: Up to 4.72% (inclusive of applicable taxes) on the outstanding loan amount as on the date of full pre-payment.
  • Flexi Term Loan (Flexi Dropline): Up to 4.72% (inclusive of applicable taxes) of the total withdrawable amount as per the repayment schedule as on the date of full prepayment.
  • Flexi Hybrid Loan: Up to 4.72% (inclusive of applicable taxes) of the total withdrawable amount as per the repayment schedule as on the date of full prepayment.

Part pre-payment

  • Term Loan: Up to 4.72% (inclusive of applicable taxes) of the principal amount of loan prepaid on the date of such part pre-payment.
  • Not Applicable for Flexi Term Loan (Flexi Dropline) and Flexi Hybrid.

*Foreclosure will be processed post clearance of first EMI

Penal charge

Delay in payment of instalment(s) shall attract Penal Charge at the rate of up to 36% per annum per instalment from the respective due date until the date of receipt of the full instalment(s) amount.

Stamp duty (as per respective state)

Payable as per state laws and deducted upfront from loan amount.

Annual maintenance charges

Term Loan: Not applicable

Flexi Term Loan (Flexi Dropline): Up to 0.295% (inclusive of applicable taxes) of the total withdrawable amount (as per the repayment schedule) on the date of levy of such charges.

Flexi Hybrid Loan: Up to 0.295% (inclusive of applicable taxes) of the total withdrawable amount during the initial tenure. Up to 0.295% (inclusive of applicable taxes) of total withdrawable amount during subsequent tenure.

Broken period interest / Pre-monthly Instalment interest

Method of recovery of "Broken Period Interest/Pre monthly instalment Interest" would be as follows:


EMI Date : 2nd

Scenario 1: If Loan is disbursed on 1st or post 10th of the month:

For Term Loan: BPI amount will be capitalised, i.e added to Principal amount on Due date / Deducted from disbursement
For Flexi Loans: BPI amount will be capitalised, i.e added to Principal amount on Due date / Added to first instalment

Scenario 2: If Loan is disbursed between 3rd and 10th of the month:
First instalment will consist of interest for actual number of days

Note: Additional cess if any, will be applicable to all charges according to state law.

*Terms and conditions apply.

Disclaimer

Bajaj Finance Limited has the sole and absolute discretion, without assigning any reason to accept or reject any application. Terms and conditions apply*.