Life can sometimes bring unexpected challenges, such as a sudden medical emergency, loss of a job, or urgent home repairs. In such times, paying personal loan EMIs may become difficult and feel like a heavy burden. If you are facing this situation and wondering what steps to take, this article will help you understand your options and plan your next move
When You Miss an EMI
The day an EMI gets missed, the struggle begins. But before we get into solutions, it helps to know what that happens next when you miss a payment:
- Extra Charges: Miss an EMI, and your next bill may carry a late fee.
- Rising Outstanding Amount: With each passing day, interest is added to your dues.
- Credit Score Drop: Your payment history is reported to credit bureaus. A delay, even by a month, can harm your future loan options.
- Follow-Ups Begin: Financial institutions will start reaching out through calls, emails and even texts.
Strategies for Unpaid Loans
In case you were unable to repay your personal loan, here are some tips to follow:
Understand Where You Stand
Before taking any action on the personal loan repayment option, take a step back and assess your situation.
- Determine whether this is a one-time situation or if it is likely to continue for the next few months.
- Take note of how many EMIs have already been missed, if any.
- Identify areas where expenses can be reduced to make room for loan payments.
- Think about any money you expect to receive soon that could help make your financial situation better.
Step 1: Reach out to your Loan Provider
Most people avoid this step out of fear or shame. However, the truth is that loan providers often have options available for individuals experiencing financial distress. You will not know unless you ask.
To repay your personal loan the right way, you need to reach out to your loan provider and explain your problem calmly. You will come to know, that your provider can help you with the following options:
- A grace period of a month or two
- Lower EMIs for a short duration
- Temporary transfer to interest-only payments
- Extending the loan tenure to reduce burden
Make sure you ask for the new terms in writing.
Step 2: Rework Your Monthly Spending Plan
Look at where your money is getting spent each month. Here are some areas where most people find savings:
- Eating out or food delivery
- Streaming or shopping subscriptions
- Unused gym memberships
- Weekend leisure or online purchases
Step 3: Explore Alternative Ways to Pay
If your financial troubles are likely to last longer, you may need to explore more solutions.
- Balance Transfer: Some financial institutions offer to take over your loan with better interest rates. If accepted, your EMI decreases, providing you with more financial flexibility.
- Part Prepayment: If you have received a bonus or gift use that to reduce your loan amount. Even a single large payment can lower your future EMIs.
- Loan Restructuring: This is not offered by every financial institution, but in some cases, you can request a new loan agreement which has longer tenures, reduced EMI, or an adjusted repayment schedule.
- Settlement: You can negotiate a settlement in some cases. This means paying a reduced amount to close the loan. This impacts your credit record, but sometimes it is the only way forward.
Step 4: Communicate
When you stop responding to calls or emails, it sends out the wrong message. Financial institutions are more likely to pursue legal recovery when they believe a borrower is unwilling to cooperate.
Even if you can’t pay in full, showing that you intend to pay is important. Explain your situation and follow up regularly.
Step 5: Worsening of the Situation
Not all loan default consequences resolve quickly. If you are going through a prolonged income decline or personal crisis, here are some solutions:
- Sell items such as electronics, jewellery, or investments which you don’t urgently need
- Consider borrowing from a family member or friend with a clear plan to return it
- Look for part-time income or freelance work to bring in temporary cash
- Contact a financial counsellor, some offer free help to structure your payments
Tips to Prevent Loan Defaults From Happening Again
Once you have resolved your immediate problem, take time to build habits that help you in the future. Financial stress can’t always be avoided, but its impact can be reduced.
Here is how:
- Emergency Funds: Maintain an emergency fund with enough to cover three months of expenses
- Entire Loan Amount: Don’t take the full loan amount just because you qualify for it
- Auto-pay Option: Use auto-pay to ensure EMI deadlines aren’t missed accidentally
- Track Expenses: Track your expenses and income monthly
- Credit Report: Check your credit report twice a year for any unusual entries
Avoid These Common Missteps
During the panic, it’s easy to make poor decisions. These might look like solutions but often cause more harm:
- New Loan: Taking a new loan to pay off the old one without a clear plan
- High-Interest Credit Cards: Using high-interest credit cards for repayments
- Unverified Digital Loan Apps: Borrowing from unverified digital loan apps
- Avoiding Communication: Avoiding all contact with your loan provider
Final Thoughts
Life can present challenging moments, and missing a loan payment does not mean you are irresponsible. It simply means you are facing financial difficulty. What truly matters is how you respond. Stay calm and take prompt action. Reach out for assistance when needed, such as contacting trusted lenders like Shriram Finance, who can offer support and flexible solutions. With each step you take, no matter how small, you move closer to financial stability.
FAQs
What steps should I take if I can't pay my loan on time?
To repay your personal loan, begin with a clear assessment of your budget. Then, speak to your loan provider and explore options such as payment deferrals or EMI restructuring.
How does missing a payment affect my credit score?
Every late EMI is recorded by credit agencies. A delay lowers your score, which can affect your future credit approval chances.
What happens if I default on my personal loan?
If no payment is made for over 90 days, the loan is marked as an NPA. This may lead to recovery calls and legal notices.
Are there penalties for late payments?
Yes. Late payment fees are added, and unpaid interest continues to grow, increasing the total amount owed.
How can I avoid legal action for missed payments?
Yes, staying in communication helps. Most legal actions occur only when borrowers fail to respond or repeatedly default.
What options are available if I cannot pay at all?
Speak honestly with your loan provider. They may still accept part-payment, restructure the loan, or suggest settlement options.
How do missed payments impact my future borrowing?
Your credit record keeps a history of all repayments. Missed payments can reduce your credit score, potentially leading to higher interest rates or even loan rejection later.