What should I know about the financial costs of late payments?

Late payments on a personal loan in India come with a range of financial costs and consequences that can affect your overall financial health. As of June 2025, the Reserve Bank of India has set clear rules on penal charges, but missing an EMI still leads to extra expenses and long-term impacts.

Here’s what you should know about the financial costs of late payments:

• Late Payment Fees: Lenders usually charge a fixed penalty if you miss your EMI due date. This fee is added to your next EMI and can be a percentage of the overdue amount or a flat charge. The actual fee varies by lender but always increases your total repayment.
• Penal Charges: While banks can no longer add penal interest to the outstanding loan, they are allowed to charge a separate penalty for late payments. This is a set amount and cannot be added to your principal or interest for further calculation.
• Credit Score Impact: Every missed or delayed payment is reported to credit bureaus like CIBIL and Experian. Even a single late payment can lower your credit score making it harder and more expensive to get loans or credit cards in the future.
• Higher Interest and Legal Action: Repeated late payments can result in higher interest rates, legal notices, and even court action. If you have a co-signer, their credit score and finances are also at risk.

To avoid these costs, always set reminders for EMI dates and maintain enough balance in your account. If you anticipate trouble then contact your lender early to discuss restructuring or temporary relief. Staying organised and proactive is the best way to protect your finances and credit profile.