What happens if I default on my loan?

Answer

A:

Defaulting on a loan means you have failed to repay the loan EMIs or the principal amount as agreed with the lender. This can lead to several consequences affecting your finances and legal standing.

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1. Negative Impact on Your Credit Score

• Your lender reports missed payments to credit bureaus like CIBIL, Experian, or Equifax.

• Your credit score drops significantly, making future loans or credit cards harder to get or more expensive.

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2. Accumulation of Penalties and Interest

• Lenders charge penalty fees for late payments, increasing your total repayment amount.

• Interest continues to accrue on the outstanding amount, raising your debt burden.

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3. Frequent Calls and Notices from Lenders

• Initially, the lender’s recovery team contacts you through calls, emails, and letters urging payment.

• If ignored, you receive legal notices demanding repayment.

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4. Legal Action by the Lender

• If default continues beyond 90–180 days (varies by lender), the bank or NBFC may initiate legal proceedings to recover dues.

• They may file a civil suit to recover the loan amount with interest and costs.

• If you issued post-dated cheques and they bounce, criminal proceedings under the Negotiable Instruments Act (Section 138) can be initiated.

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5. Loan Account May Be Classified as Non-Performing Asset (NPA)

• After 90 days of non-payment, your loan may be classified as an NPA.

• This classification signals to other banks and lenders that you are a defaulter.

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6. Asset Seizure or Auction (for Secured Loans)

• For secured loans like home or vehicle loans, the lender has the right to repossess and sell the collateral (e.g., house, car) to recover dues.

• You may lose ownership of these assets if you continue defaulting.

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7. Difficulty in Getting Future Loans

• Your creditworthiness declines, so banks may reject future loan applications or offer loans at higher interest rates.

• This can affect your ability to buy a house, car, or get credit cards.

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8. Possible Jail in Specific Cases

• Default alone does not lead to jail. However, if you have issued bounced cheques as part of the loan repayment, you can be prosecuted under the Negotiable Instruments Act, which may include jail time.

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How to Avoid These Consequences?

• Communicate Early: Inform your lender if you face difficulty paying; they may offer restructuring or moratoriums.

• Prioritize Payments: Pay EMIs on time or request a temporary relief plan.

• Seek Legal/Financial Advice: Professionals can guide you on negotiation or settlement options.

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If you need help with loan default issues or want to understand your legal rights, reach out to legal experts.

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Need Expert Help?

Visit: www.legals365.com
Call: +91 9625961599

Advocate B.K. Singh and team are here to support you!

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