What Happens If I Default on an Instant Personal Loan?
When you borrow money through an online instant loan, you enter into a legal loan agreement that states that you will repay the amount as per the given terms. But, sometimes individuals cannot pay back the loan. This can be because they have run out of funds or other unforeseen expenses came up. When you fail to repay the loan in full with the interest in the given time, that is known as Defaulting.
In this article, we cover how defaulting on a money loan impacts you and what you should do if you think you might default. We will also cover quick tips on how to avoid defaulting on an instant cash loan.
How Does Defaulting on a Loan Impact You?
1. Your Debt Increases
If you miss payments, you rack up late fees, penalties, legal costs, and additional charges. This increases your debt in addition to the outstanding balances you may have with the lender.
2. You Get Classified as a Defaulter
When you miss multiple payments on your quick personal loan, the lender will issue reminders and offer an extended window of time. If you fail to make the EMIs within the notice period, you will be classified as a defaulter. This information is then shared with CIBIL and other credit rating agencies.
3. Your Credit Score is Negatively Affected
Once you have defaulted, it shows that you were unable to pay the loan money amount. This makes it risky for other lenders to approve you for a loan. Credit rating agencies reflect this in your credit score and your score dips significantly. This can make it harder for you to access other loans and credit services. You may experience longer processing times, more documentation requirements, and higher interest rates.
4. You Still Need to Repay the Quick Loan
Whether it is a bank or a quick cash loan app, most lenders have an in-house collection team that will try to retrieve the money. If they fail to do so, they may hire a third-party collection agency to recover the loan amount. Defaulting is a civil offence when the borrower does not have the financial ability to repay the loan. If you have the money to repay the loan and fail to do so, you can be classified as a wilful defaulter. This is a criminal offence and lenders can sue you in court.
What Should I Do if I Might Default on a Money Loan?
1. Refinance the Money Loan
Refinancing refers to restructuring your current money loan to have more favourable terms. If the lender is willing, you may be able to reduce the EMI amount or extend the loan tenure. This might make it easier for you to make the monthly payments and clear the loan. Be careful that extending the loan tenure does not lead to you paying significantly more in interest over time.
2. Increase your Income or Reduce Expenses
To create more income to pay the loans, you could take up short-term jobs or freelance projects. You could also reduce expenses to create more funds from your existing income.
3. Debt Consolidation
If you have multiple outstanding debts that you are unable to repay, you could take out a new loan with a lower interest rate. This reduces the chances of you missing payments, ensures you pay off your loans, and gets you back on track to financial health.
How To Avoid Defaulting On A Loan
1. Do Your Research Before Taking a Loan
Study different options, and learn about interest rates, loan tenures, and repayment terms. Only take a quick cash loan when you are confident that the loan agreement is favourable to you.
2. Check Your Finances
Ensure that you are in good financial health and can repay the money loan comfortably. Create an emergency fund in case you run into a cash flow problem.
3. Do Not Miss EMIs
Set reminders so you do not miss any repayments. This greatly reduces the chances of your defaulting on the loan.