Personal loans: Missed your payment? Here are the consequences you may face

livemint.com:

Missing personal loan payments won’t land you in jail, but it can cause significant financial stress and damage your future credit opportunities. Here’s what can happen:

At this point, the lender may opt to sell your debt to a collection agency, which is a third-party firm specialising in recovering unpaid debts. Collection agencies often use frequent phone calls, emails, and letters to urge you to repay the debt, which can be stressful and feel intrusive. Besides the stress, having a debt in collections is reported to credit bureaus, worsening your credit score. This makes it more challenging to obtain loans or favourable interest rates in the future.

Penal interest and charges are designed to encourage responsible credit behaviour among borrowers. Recent regulations from the Reserve Bank of India (RBI) have stressed that these charges should be fair and not employed solely to generate extra income for lenders. The objective is to foster responsible borrowing practices rather than imposing excessive penalties on borrowers.

Frequently Asked Questions (FAQs)

If you miss too many payments on your loan, the lender may transfer your loan to a collection agency, which can cause stress and further harm your credit score.

If you're struggling to make payments, reach out to your lender promptly. They might be able to assist you in devising a repayment plan.

Different lenders impose varying penalty structures. It's crucial to carefully review your loan agreement to comprehend the specific late fees, potential interest rate hikes, and debt collection protocols. These penalties for late payments are contingent upon the lender and the terms stipulated in your loan agreement, which outline the late fees, potential interest rate