Problems You Can Face on Defaulting at a Personal Loan and Ways to Get Around It

Defaulting on a personal loan can invite several repercussions that may lower your credit score and much more. What counts as a default? Every lender has different terms and conditions to it. Some financial institutions may consider a loan default, if you miss repayment for 30 days and after, while some lenders count it as one, if the payments do not come by 60 or 90 days. It is always best to never default at repayments of a personal loan, so that you can live a financially stress-free life.

In case you miss one payment, it may not necessarily count as a default, but a late payment or additional fee on outstanding EMI, be charged. Some banks/NBFCs will provide a grace period before they apply a late payment charge, which is usually, is applied after 10 to 15 days of the delay in payment. There could be a fixed fee, which is relayed upfront in the loan agreement.

In case you do miss or delay the payments on the loan, here are some of the consequences you may encounter.

  1. Penalty Charges

You would be lucky to get a no-fee personal loan offer, but that is usually not the case. Most banks and NBFC will charge a late payment fee, if you default more than a week or 10 days on the loan payment. The grace period depends on the tenure. Short-term tenure may require you to pay more regularly than long-tenure loans. If the payment cheque bounces, you will have to pay additional charges. A fixed payment amount or percentage of the remaining amount to be paid will be charged as a fee.

  1. Financial Woes

Debt if unpaid creates a financial mess, which you would certainly not like. It is best to have a concrete plan for repayment, if you take a personal loan. You have to follow this plan in a disciplined manner so as to not jeopardize finances. If you default at the payment, it will stress further financial plan and affect your whole budget. You have to sell off assets or liquidate investments to pay for the EMIs, and this in turn will hurt your financial journey.

  1. Lowered Credit Score

If your repayment history has been perfect so far, do not let a default spoil it. If you default at personal loan repayment, then it will immediately lower your credit score. This will negatively impact the chances of securing a new loan. Defaults can show on your credit report for several years. Moreover, it will take time for you to strengthen your score by again making timely repayments.

How to Avoid Defaulting on a Personal Loan?

There is no need to be scared about personal loan default as a few corrective measures and negotiations with the lender can bring you out of the hot water. Like they say, it is always best to find a solution than cry over spilled milk.

  • Take a Soft Loan: Contact your friends or family members for a soft loan to pay the outstanding loan amount/EMIs. This way, you do not have to immediately worry about defaulting at the loan. You can work a comfortable repayment schedule thereafter with the lender and repay your loved ones for the help they rendered in dire situation.


  • Contact the Bank/NBFC: If you think you may default at the loan, take a preventive step and contact the lender. The financial institution may be willing to rework on the repayment schedule and adjust the loan term or suggest other options to save you from a default. Do not wait until you miss the payment, but speak well in advance about the situation with the fund-provider.


  • Speak with Your Employer: If salary-in-advance can help pay the EMIs, then you should chat with your employer about it. If you have been good at your profession and had friendly-ties with the management, then they may offer you an advance salary, with which you can pay the dues.

Defaulting at a personal loan will surely cause some trouble in finances and credit profile, but there are ways to get out of the murky situation. The above-given ideas will help you understand as to what can go wrong on delay and default at repayments, and how to get around the same.

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