One EMI on a personal loan can be missed due to a variety of reasons, one of which could be a late salary or an emergency expense. At first glance, it might look minor, but a missed EMI plus other such needed payments can lead to a domino effect that can severely impair the borrower’s credit profile and future borrowing potential. Also, it is important to comprehend the effects of a missed EMI and the steps to take if you find yourself in such a situation.
On time payment of installments is one of the essentials to establish a good credit history. It does not really matter if it is a short-term loan or a long one, sticking to the schedule is a good idea because you remain the one who is in charge of your finances and your creditworthiness is not harmed.
Immediate Impact of a Missed EMI
The lender will notify that your payment is overdue when you do not make your personal loan EMI payment on time. Lenders usually give a grace period of a few days to complete the payment during which they do not charge a late fee. But if the payment is not made within the given time period, it will be considered as an extra amount in your next EMI. The longer the delay, the higher the penalty.
Also, the missed payment will be reported to credit bureaus. Just by one missed personal loan EMI, a credit score can be negatively affected by 50 to 100 points, depending on a previous repayment history. An already low credit score can have a disastrous impact on loan application rejections in the future.
Effect on Your Credit Score
The credit score of a person is a representation of their creditworthiness and financial skills. Missing EMIs serves as an indicator that repayment capacity is poor, even if it was a mistake. A lower score can make it much more difficult to get future loans or lead to higher interest rates if granted.
So you might be thinking of taking an instant personal loan at the best rate in the next few days, but if your credit score decreases because of missed EMIs due to some unfortunate circumstances, this could limit your eligibility for the loan. In case you get the go-ahead, you might still not be given good terms or repayment options that suit you.
Firstly, a late payment charge and penalties
Beyond the negative impact on credit score, the lenders are also after you with a late payment fee for missed EMIs. Such fee is different from one lender to another and is mostly a percentage of the EMI amount or a fixed sum. The next EMI will be charged with the amount of the fee thus increasing your repayment burden.
If the case happens to be that defaults are repeated, penal interest may be charged on the overdue amount thus greatly increasing your total loan cost. In the event of multiple payments missed, the account might be marked as a delinquent.
Secondly, the risk of loan default and recovery action
The situation will get worse if you have not just missed one but more EMIs and haven’t tried to get your payments up to date. At such a point your loan will be considered as defaulted. Non-payment for more than 90 days will make the lender treat your loan as a non-performing asset (NPA) and hence, s/he will be allowed to initiate recovery action.
Recovery action may be any of these: sending legal notices and/or engaging recovery agents and/or filing legal proceedings if the issue is not resolved. If there is no security for personal loans, the lenders will, however, continue their efforts thus aggressively through formal channels.
Besides that, your defaulting will mirror in your credit report for years to come, hence, not only loans but also credit cards, home loans, or even rental approvals might be hard to get in some cities.
How to handle a missed EMI
If you missed the best personal loan EMI, you need to act immediately. The earlier you fix the problem, the easier it is to prevent the need for repairs in the long run. Get in touch with your lender, and explain the situation. Most lenders grant short-term relief like payment extension or revised schedule to their customers.
In addition, by paying the missed installment and the penalty part right away, you are effectively preventing the issue from turning into a bigger one. If your financial difficulty persists, see if an arrangement with the lender is an option. A part of the providers can give you reduced EMIs or an extended period of time for use temporarily.
Unless you are very sure about your ability to pay off, do not take a new loan or credit card to settle the missed EMI. Otherwise, you might end up in an unmanageable situation that can worsen if not solved.
How to Avoid Missing EMIs in the Future
Create an auto debit from your bank account to ensure that the EMI is paid on time each month. Keep a sufficient balance a day or two before the due date. Also, setting reminders on your phone or calendar will be helpful.
Have a modest emergency fund so you are covered even during a cash flow gap. In case an income delay or an expense spike is expected, do not wait until the last moment. Inform your lender and discuss alternative options.
Another way to make repayment more manageable is to opt for a personal loan with flexible repayment terms, longer tenure, or the possibility of taking EMI holidays at the beginning of the loan.
Conclusion
Although it is not a good thing to miss a personal loan EMI, it is not the end of the world as it can lead to severe financial issues if left unattended. This can range from additional charges to credit reputation damage and recovery actions, which can last longer than anticipated. You only need to be quick in addressing the problem and keep an open communication line with the lender to be able to soften the impact and return to normal. The best-personal loan is not just one with the cheapest interest rate, but one that matches your repayment ability and provides flexibility whenever life takes an unexpected turn.