What Happens When You Default On Loan Payments?

What happens when you fail to repay your business Loan EMI?. Get to know the consequences of missing an EMI payment & other details here. Visit Now!

19 Aug,2022 11:39 IST 379
What Happens When You Default On Loan Payments?

A quick loan can be the best way out of a financial emergency. However, there may be times when you might falter in EMI payments on your loan for business. Non-payment of loan EMIs or defaulting on a loan could reduce your credit score. It could also hamper your financial reputation in more ways than one. Payment delays and defaulting can also sever your chances of securing a loan in the future.

What Does It Mean To Default On A Loan?

If you fail to repay the loan installments on time, you are marked as a defaulter when a lender calculates business loan repayments. Most lenders, including banks and NBFCs, allow a grace period that begins soon after you fail to pay an EMI. If you pay the missed EMIs within this period, it will not affect your creditworthiness.

The grace period span varies among lenders. However, only when you miss paying pending EMIs within this grace period does your CIBIL score begin to suffer.

How Does A Low CIBIL Score Affect You?

The CIBIL score is a significant factor in determining your eligibility for any loan for business or personal use. Your lender will duly fill in all details of your sanctioned loan amount, payment details, and the pending amount. Therefore, missing any EMI payments will result in a drop in your CIBIL score. However, when you keep missing multiple payments, your score drops significantly, affecting your chances of further loan approval.

Extra Fees And Charges

When you default or delay an EMI, you will always have to pay additional charges, including a late fee and GST. Payment of missed EMIs after the due date attracts these charges, which you must pay over and above the original EMI amount.

Reduced Capacity For Borrowing

Applying for a loan with a low credit score is not advisable. Loan applications get rejected when the CIBIL score is not up to the required limit. New lenders do not consider any exceptions to missed payments on older loans either, leading to application rejection. Additionally, even if the lender approves your application, it would include a much higher interest rate.

Collateral Loss

You will lose your pledged assets as collateral when you default on a secured loan. However, there is a grace period and relevant norms are applicable. Consistent defaulting on a loan will lead to collateral seizure at the lender’s end.

Legal Implications

Some lenders might take the legal route if you fail to repay the loan after surpassing the loan tenure significantly. This legal action may not lead to severe punishment, such as a jail term, but could lead to higher penalties. Legal action against a borrower is often the last resort for a lender.

Guarantor Woes

If you have a guarantor for a loan sanction in your name, there could be implications of negligence on the former. Some chances of defaulting on a loan can impact the guarantor’s credit score.

Trust IIFL Finance For All Your Loan Needs

Take a loan at an affordable interest rate from IIFL Finance and discuss the flexible repayment options and tenure instead of defaulting on a loan payment. This way, you can achieve your dreams free from financial woes with a loan for business.


Q1. Is a personal loan a secured loan?
Ans. No, personal loans are unsecured and sanctioned based on your income level.

Q2. Will defaulting on EMIs harm your credit score?
Ans. Yes, it will negatively impact your credit score. Defaulting on EMI payments determines your inability to repay the debt on time.

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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