What Happens If My Personal Loan Becomes NPA?

You may not plan to miss your loan repayments, but sometimes life gets in the way. A job loss, medical emergency, or unexpected expenses can throw even the most disciplined budgets off track. What starts as one missed payment can slowly spiral into multiple defaults. And before you know it, your loan account risks being tagged as a Non-Performing Asset (NPA). So, what exactly does it mean when your loan becomes an NPA? To know more, read the blog below!

What is an NPA
 

An NPA (Non-Performing Asset) refers to a loan account that has failed to make payments scheduled for more than 90 days. In simple terms, if you miss your Personal Loan EMIs for three consecutive months, your loan account is flagged as NPA by the lender. When this happens, the lender assumes that the chance of recovering the loan is slim. This triggers a set of recovery processes, starting with notices, legal actions, and even credit rating downgrades. 

Impact of a Personal Loan Turning into an NPA

When your Personal Loan account is classified as an NPA, it can lead to a range of financial and legal consequences that may affect your peace of mind. Here’s what you should be prepared for: 

1.    Significant Drop in Credit Score
Your credit score is a reflection of your repayment behaviour. Once your loan turns into an NPA, credit bureaus like CIBIL or Experian will reflect this default, which may reduce your score by 100 to 150 points or more. This affects your chances of getting future loans or credit cards.

2.    Legal and Recovery Proceedings
Lenders and banks have the right to initiate recovery proceedings once your account turns NPA. This may involve:
•    Recovery notice
•    Phone calls and follow-ups
•    Engagement of third-party recovery agents
•    Legal action in severe cases

3.    Negative Impact on Co-borrowers or Guarantors
If someone co-signed your loan or stood as a guarantor, the NPA status affects their credit history too. They may also become liable for repayment.

4.    Loss of Financial Opportunities
NPAs don’t just affect your access to credit; they can limit job opportunities, especially in financial services, government jobs, or any role that involves financial responsibilities or background checks.  

What Should You Do If Your Personal Loan is at Risk of Becoming NPA

If you are struggling to make repayments or foresee a financial crunch, it’s crucial to act early. Here are a few things you can do:

1.    Use Part-payment to Reduce Principal Burden
If you have received a bonus, tax refund, or any windfall income, consider making a part-payment towards your loan. It reduces the outstanding principle and lowers future EMI stress.

2.    Consolidate Debts into a Single Personal Loan
If you are juggling multiple EMIs, consolidate them into one Personal Loan with a longer repayment period. This simplifies your finances and may reduce your monthly outgo.

3.    Request Loan Restructuring Under RBI Guidelines
As per RBI’s restructuring framework, if you are genuinely facing financial hardship, you can apply for:
•    Extension of loan tenure
•    Reduction in EMI amount
•    Temporary moratorium on EMIs

4.    Monitor Your Loan Status Actively
Keep track of your loan account through mobile banking, emails, or monthly statements. A proactive approach helps you notice overdue EMIs, interest hikes, or bounced payments in time. 

5.    Seek Financial Counseling
If you are unsure how to manage your debt, reach out to a certified financial advisor or free credit counseling services. They can help restructure your budget and build a repayment plan.  

How to Avoid Your Personal Loan from Becoming an NPA

Preventing default is always better than dealing with the aftermath. Here’s how you can stay on top of your loan:

•    Borrow Within Your Means: Only take a loan amount that you can comfortably repay. Avoid borrowing just because you are eligible for a higher amount.

•    Build an Emergency Fund: Keep aside at least 3 to 6 months’ worth of expenses. This cushion can help during job loss or medical emergencies.

•    Set up Auto Debit for EMIs: Automating your payment ensures you never miss due dates. Link your EMI to your salary account to avoid fund shortages.  

•    Track Due Dates and Maintain a Budget: Use budgeting apps or calendar reminders to keep tabs on repayment dates. Budgeting also helps in cutting unnecessary expenses.

•    Avoid Multiple Loans at Once: Too many lenders increase your debt burden. Therefore, stick to one or two active loans and close them before taking another. 

To Conclude

A Personal Loan turning into an NPA is not the end, but it does mark the beginning of serious financial trouble. It affects your creditworthiness, increases stress and may even invite legal complications. However, the key lies in awareness, early intervention, and responsible borrowing. So, if you are facing difficulties in repaying your EMIs, reach out to your lender, use available tools and make a solid repayment plan. The sooner you act, the better your chances of staying financially secure. 

Frequently Asked Questions

What does it mean when my Personal Loan becomes an NPA?
An NPA (Non-Performing Asset) means your loan account has not received payments for over 90 days. It indicates a default and triggers recovery actions from the lender.

Can I restructure my loan to avoid NPA status?
Yes, under RBI guidelines, you can request restructuring such as tenure extension, EMI reduction, or a temporary moratorium.

How can I monitor my loan status to avoid default?
Use mobile banking apps, check monthly statements, and set reminders for due dates to stay on top of your repayments.