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Any default in EMIs means that you have to pay penal charges to your respective lender. Additionally, this can negatively impact your credit score, leading to higher interest rates on future loans or reducing loan eligibility. In this article, you’ll get to know about the consequences of missing an EMI, how it affects your credit profile and what steps you can take to recover.
From Minor Delays to Major Defaults: Why Timely Repayment Matters
Missing a personal loan EMI – whether by just a few days or for several months – can have serious financial consequences. Here’s how the impact escalates:-
- A minor default, such as a short delay beyond the due date, may lead to penalty charges and a dip in your credit score.
- On the other hand, a major default is when an EMI remains unpaid for more than 90 days:-
- The loan is classified as a Non-Performing Asset (NPA).
- This leads to penalties and is reported to credit bureaus, resulting in a sharp drop in your credit score.
- Consequently, your chances of getting approved for future loans or credit cards are reduced to a great extent.
- The Silver Lining: While the impact can be serious, timely repayment after a default can gradually improve your credit profile.
Consequences of Missing Personal Loan EMI Payments
Penalties on Missed Payments
Most banks and NBFCs charge late payment fees on non-payment of EMIs by the due date. The charges vary and add additional costs to the total amount you owe. Additionally, interest continues to accrue on the unpaid EMI, increasing your overall debt burden. Some lenders offer a grace period of around 3 to 7 days, during which late payments may not incur charges. However, once the grace period ends, penalties apply on the unpaid EMI amount.
Check below the penal rates charged by top lenders on missed EMI payments on your personal loan:
| Personal Loan Lenders | Penal Rates on Missed EMIs |
| SBI | Up to 5% p.a. on the overdue amount for the period of irregularity |
| HDFC Bank | 1.50% p.m. (18% p.a.) plus taxes on overdue instalment amount. The charge will be applicable for all accounts where EMI remains unpaid after the expiry of the grace period of 7 calendar days from the due date of the EMI |
| Axis Bank | 8% p.a. above the applicable interest rate on the overdue amount (subject to the aggregate not exceeding 24% per instance) |
| ICICI Bank | 5% p.a. on the overdue EMI until repayment |
| IndusInd Bank | Rs 150 per EMI delay beyond 5 days |
| IDFC FIRST Bank | 2% of unpaid EMIs |
| Tata Capital | 3% on the overdue amount monthly |
| Kotak Mahindra Bank | 8% p.a. on the overdue amount |
Apart from penal rates, personal loan lenders also levy dishonour charges, which include EMI dishonor charges, cheque/NACH/SI bounce charges if your payment fails due to insufficient funds in your bank account. This is usually a fixed charge levied each time an automated EMI deduction fails or the post-dated cheque bounces.
Impact on your Credit Score
Even one missed EMI, if overdue beyond the lender’s grace period, can result in a drop in your credit score. Lenders report this delay to credit bureaus such as CIBIL (TransUnion). These bureaus maintain your credit history and use it to calculate your credit score. A higher score reflects strong repayment behaviour, while a lower score signals a higher credit risk.
A drop in a credit score can result in —
- Higher interest rates on future loans,
- Lower credit limits, and
- Reduced chances of loan or credit card approval
Higher Interest Rates on Future Loans
Lenders review your credit profile before approving any loan. If your credit report shows missed or delayed EMIs, the lender may consider you a high-risk borrower. As a result, your application can get approved, but at a higher interest rate, increasing your cost of borrowing. Additionally, some lenders may reduce the loan amount approved, shorten the tenure or require additional documentation or collateral to mitigate the risk.
How Long Does It Take to Recover from EMI Default
The time it takes for your credit score to recover from your EMI default depends on the extent of the impact on your credit score and your financial behaviour afterwards. The recovery of your credit score depends on factors such as –
- frequency of missed payments,
- whether similar defaults have occurred in the past and
- your repayment behaviour following the missed EMI.
Lenders also consider how consistently you manage other credit obligations, such as credit card payments, outstanding loan balances, and your overall credit utilization.
How to Avoid Missing EMI Payments
- Setting reminders or automating payments can help you stay on track.
- Maintain an emergency fund to cover EMIs during financial stress.
- Make full or partial prepayments if you have surplus funds to reduce the EMI burden. Note that the lender charges prepayment/foreclosure fees on the personal loans availed at fixed interest rates.
- Always keep a sufficient balance in your account on EMI dates to avoid bounce charges.
- Check with the lender if they can restructure the loan or extend the tenure to lower the EMI in case you’re facing financial difficulties.
What You Can Do After Missed EMI Payments
- Start by clearing the overdue amount as soon as possible. Some lenders may offer options like restructuring the loan or a short-term grace period if the missed payment was due to a financial emergency.
- Maintain timely payments of your EMIs and credit card bills and avoid repeated defaults by setting up auto-debit mandates or payment reminders.
- Check your credit score periodically to monitor progress and ensure there are no reporting errors.
