Repaying debt to banks, online businesses, and NBFCs is essential. This is because these debts can have a serious impact on one’s credit score and ability to get loans in the future. In some cases, this may mean a delay in getting a loan for a home or car, or for any emergency need, which can be disastrous. It is essential to pay back any debts as soon as possible to improve one’s credit score and avoid any negative effects. Personal loan defaulters are people who default on their loans, which can result in lawsuits. If you are a personal loan defaulter, it is important to understand your rights, the consequences of default payments and how the personal loan defaulter legal action taken by the creditors’ works.
Consequences of a Personal loan default
If you are not capable of repaying the loan and are overdue on your repayments, your name will go up in the default list. And, you have to face certain consequences.
Negative impact on credit score
Everyone knows someone who has struggled with credit because of a personal loan. In some cases, people might have missed payments on their loans for several months or even years. When this happens, the credit score of these individuals will take a hit. This can make it difficult to get approved for new loans in the future and can increase the cost of borrowing. If you can make the payback within 60 days while also paying the penalty, it won’t have a significant negative impact on your credit score.
Growth of financial burden
The rise in the number of loan defaults has a profound impact on one’s financial burden. Along with your monthly payment, you become responsible for late fees and penalty charges when you don’t make the repayments on time. These charges are added to the balance you still owe. At that time, managing your finances becomes quite challenging.
Arbitration
Creditors may file a lawsuit to recoup their loan from you. The creditor will first notify you by email or SMS if you initially miss your repayment deadline. The creditor will send you another reminder to make the payment if you ignore it for longer than thirty days. After that, a notice will be delivered to your registered address via post. And, the last resort is to take legal action against loan defaulters or foreclosure on your property. Therefore,don’t disregard your creditor and devise a plan to repay the loan.
Legal Actions Taken
There are several reasons why someone might default on their loan, but the main reason is usually financial hardship. If a creditor considers taking personal loan defaulter legal action against someone who has defaulted, it is important to understand the rights and what you can expect from the court process. We’ll examine a few of the most typical legal proceedings brought against a defaulter.
- File for bankruptcy: This is probably the most drastic option, but it can be an effective way to get borrowers into serious financial trouble and make them more likely to pay back their debts.
- Sue for damages: If the creditor thinks that the borrower has caused direct financial damage to them, then they can sue the borrower for compensation.
- File a case: The creditor can file a case against the borrower as per the Negotiable Instruments Act, 1881, section 138. This is done following 180 days of the borrower’s failure to make payments on the personal loan.
- Recover outstanding amount: Even after issuing a legal notice, if a borrower still doesn’t pay the EMI, the creditor will send executives to your door to collect the unpaid debt.
- Life imprisonment: According to Section 420 of the Indian Penal Code, those who are in default on personal loans are also sentenced to life in prison. The credit history will suffer as a result, making it more difficult to obtain any loans hereafter.
How to settle payment default?
Legal issues may arise for borrowers who miss payments on personal loans. To recover the amount lent, interest rates and other expenses, creditors can file lawsuits against borrowers. Creditors can attempts to recoup these funds in a few different ways.
- To catch up, if you are experiencing financial difficulty, speak with a creditor about a brief instalment plan.
- You can discuss extending the loan’s term and lowering the EMI payment with the creditor. This can ease debt repayment and lessen the strain of the loans.
- A debt consolidation strategy is an additional option. Consolidated debts do not, however, relieve you of your financial commitments. Therefore, you must repay the entire debt in the allotted period.
Personal loans are for those people who are experiencing finanical difficulties. The tenure for personal loans are quite flexible thus, one must repay it within time. So, to keep your credit score high, make sure there are no payment defaults. As a result, in order to prevent defaulting on your loans, it’s critical to plan your repayment methods and always make your EMI payments early.
