Major Steps to Follow to Avoid Missing Personal Loan EMI

Even a single EMI (equated monthly instalments) payment default can have serious financial consequences for borrowers. Beyond late payment fees, missed EMIs can damage your credit score, reduce your loan eligibility, and make you appear a higher-risk borrower. Understanding the mistakes to avoid while paying EMIs is crucial for maintaining a healthy financial situation and securing favourable interest rates on future loan applications.

What Happens if You Miss Your Personal Loan EMI Payment?

When your bank account does not have enough money on the date of EMI, the automatic deduction fails. Most lenders even send email notifications, make reminder calls, or offer an EMI-free period for payment. 

However, failure to clear dues incurs late payment penalties. Missing three consecutive monthly payments makes you a loan defaulter, which can lead to legal proceedings against you for loan defaults.

Understanding EMI Missed Charges and Late Fees

Financial institutions charge a penalty of 1% to 2% on overdue EMIs. These late fees add to your outstanding loan balance, creating a higher-cost spiral.

The longer you delay loan repayments, the more piled-up EMI missed penalty you are exposed to, which threatens your easy ability to repay the entire loan amount and plan money effectively.

Impact on Credit Score and Credit Report

A single missed EMI payment can lower your credit score significantly, affecting your credit rating forever. Credit bureaus record each late payment on a borrower's credit report, which can harm future loan applications.

This mark spoils your credit history for years, leading to higher interest rate terms, less flexibility in availing a Personal Loan and home loan EMI options, and other loan accounts with flexible repayment options.

Classification as Risky Borrowers

Lenders are very careful about your repayment history and your eligibility for unsecured loans, which is where they will look when you apply. Even one default comment makes you a risky borrower.

Most lenders turn away borrowers with poor repayment histories, regardless of their current scores. Approved loans are associated with unfavourable terms, high interest rates, lower loan limits, and restrictive repayment tenure options, creating a greater financial burden.

Legal Proceedings and Financial Crisis

Persistent missed payments, despite notices, prompt lenders to initiate legal proceedings to recover loans. Legal action creates permanent records that cause your credit score to be adversely affected, further affecting your capability to clinch future loans from any financial institutions, including secured loan options against property/assets.

Best Practices to Avoid EMI Payment Defaults

Preventing EMI missed charges requires planning your finances and executing them aggressively. Understanding common mistakes to avoid when making EMI payments helps ensure timely repayment, protects your financial health by avoiding late payment penalties, and prevents damage to your credit history.

•  Calculate low loan EMI costs on a Personal Loan EMI calculator before taking out a loan. It is essential to avoid exceeding monthly obligations when planning for unexpected expenses, such as medical emergencies or cash-flow issues.

•  Build an emergency fund equal to six times the equated monthly instalments. This buffer helps prevent defaults in the event of job losses, medical emergencies, or income interruptions, while maintaining a healthy credit score and timely EMIs.

• Enable auto debit facility to ensure that there are sufficient funds automatically transferred to EMI on due dates. This eliminates oversight errors, ensures timely payments, and helps maintain a positive repayment history across all loan accounts.

•  Keep track of your monthly budget and bank account balance regularly before impending payments on loans become due. If a borrower anticipates cash flow problems, it is advised to contact lenders immediately to discuss potential financial assistance or restructuring options.

•  Avoid multiple loans at a time. Overlapping loan payments can put you at risk for overdue EMI situations and a financial crisis that will damage your overall creditworthiness and your ability to get loans in the future.

To Conclude

Timely repayment helps maintain a healthy credit score and enables access to favourable loan terms in the future. If repayment challenges arise, it is always advisable to communicate transparently with the lender rather than avoiding contact. Early intervention can prevent minor issues from escalating into long-term financial consequences that impact your credit history.

Apply for a Personal Loan with Poonawalla Fincorp and get quick access to funds with flexible repayment options. Check your eligibility today and borrow with confidence.

Read Also: A Brief Guide to Personal Loan Part-Prepayment

FAQs

What are the EMI missed charges on a Personal Loan?

EMI missed charges are late payments that lenders may charge. It is calculated as a percentage of the overdue amount when a borrower makes late payments.

How does even a single EMI default affect future loan applications?

A single missed EMI payment can lower credit scores and leave permanent negative marks on future loan eligibility and interest rates.

What happens if you miss three consecutive EMI payments?

Missing three consecutive payments will make you a defaulter for a period, which may lead to legal action, recovery efforts, and permanent damage to your credit report.

Can the auto-debit facility prevent missed EMI penalty charges?

Enabling auto-debit ensures automatic payment deduction on due dates, without errors or late payment penalties, when sufficient funds are available.

What are the key mistakes to avoid EMI payment defaults?

The main mistakes include taking on more debt than one can afford, not being prepared for emergencies, and not setting up auto-debit. You may be taking on multiple loans simultaneously and not monitoring your monthly budget.