A personal loan is that type of loan in which you need not pledge something such as gold or property and is also offered with minimal documentation. You can use this personal loan any way you want- fund a holiday, buy a gadget, use it for home renovation, spend on a wedding, buy a car, etc. and this can be paid in the form of installments.

But some people don’t realize the importance of repaying debts that are taken from the lender. This indisputable truth is that even a single default recorded in your credit report can harm your credit score.

Consequences

Sometimes, if the borrower does repay after a few days of the repayment date, this would be considered a late payment, and you have to pay the penalty for that. But this also depends on various factors such as: if the defaulter pays after 30 days, then the late payment will get reported and can have an impact on his credit health, but this wouldn’t be long lasting. If the defaulters miss it for30-60 days, then this will also harm his credit health.

But this will not create long-lasting damage. If the defaulter has missed the payment for 60-90 days, it would severely impact his credit health. And missing payment for 180 would create a long-lasting impact on his credit score. If this happens, the lender will report his status to credit bureaus as a “written-off” account. After that, they will try to contact the defaulter to retrieve the money; if they fail, they will appoint a third-party collection agency to recover the loan amount.

Legal action

If the borrower defaults his credit history and pays within 180 days of delay, the police will not arrest him. Still, after 180 days of non-payment, the bank can file a case against the defaulter under the 138 section of the Negotiable Instruments Act, 1881.

If the financial institution finds the borrower an unruly defaulter, the lender can file a criminal case under Sections 403 and 415 of the Indian Panel Code, 1860.

Nonpayer rights

All borrowers are not unruly defaulters; some face genuine problems for repaying the loan amount. If this happens, then the defaulter has the right to ample notice from the lender. The lender will give them 60 days to repay the amount. The recovery officers that the bank appoints cannot humiliate the borrower.

To avoid legal action, the borrower can go and talk to the lender about his existing problem. The borrower can ask them for more time to repay the loan amount; then, they will restructure the loan and help increase the loan tenancy or decrease the EMI amount. This will help the borrower to reduce his burden and repay the loan easily.

The conclusion

The lenders provide the personal loans without pledging any security to take action against the borrower if they default on their credit history. So it’s a moral duty of every borrower to repay the loan amount as per the tenancy.