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What happens if you default on a personal loan repayment? Know the consequences
What happens if you default on a personal loan repayment? Know the consequences

Mint

time09-07-2025

  • Business
  • Mint

What happens if you default on a personal loan repayment? Know the consequences

With the advancement in technology, these days, personal loans are available easily at the click of a button. In many cases, you don't even need to approach banks for a personal loan. Banks themselves reach out to you with pre-approved personal loans. While personal loans are available easily, borrowers must use them responsibly and repay them on time. Defaulting on a personal loan repayment can lead to severe consequences. In this article, we will understand what happens when a borrower defaults on a personal loan repayment. Defaulting on a personal loan repayment can lead to financial, legal, and psychological consequences. Let us understand them in detail. Late payment charges: Most banks collect the personal loan EMI through an auto-debit from the borrower's savings account. If the payment is returned, the bank will levy a payment return charge. For example, HDFC Bank levies a payment return charge of Rs. 450 per instance. Similarly, ICICI Bank levies Rs. 500 for cheque/auto-debit/electronic clearing service (ECS) bounce charges. Apart from the payment return charge, there will be a delayed instalment payment charge. For example, HDFC Bank charges 1.50% per month (18% per annum) plus taxes on the overdue instalment amount. The bank provides a grace period of 7 calendar days from the instalment due date. After the expiry of the grace period, if the instalment remains unpaid, the delayed instalment payment charge is levied. Similarly, ICICI Bank levies a late payment charge of 5% per annum on the overdue personal loan EMI until repayment. Credit score takes a hit: As per RBI guidelines, banks must report all delays in personal loan EMI payments to the Credit Information Companies (CICs) like CRIF High Mark. The reporting is done every 15 days. Any delay in the personal loan EMI payment will reflect in the borrower's credit report. Timely payment of loan EMIs and credit card outstanding has the highest weightage in the calculation of an individual's credit score. Hence, any delay in the personal loan EMI will hit the borrower's credit score badly. The borrower's credit score will fall sharply. After the EMI payment delay gets reported to the CICs, even if the borrower starts making EMI payments regularly on time, the recovery in the credit score will only be gradual. Calls and visits from recovery agents: In the event of a personal loan EMI default, the bank will send you payment reminders through various channels like phone calls, SMS, emails, WhatsApp messages, etc. If the borrower doesn't pay up within a specified timeline, the case is handed over to the recovery department/agency. The recovery agents will start making calls and visits to the borrower's home/office, which can be embarrassing. Co-applicant/guarantor will be asked to pay up: If there is a co-applicant or a guarantor, the bank will ask them to pay up on behalf of the borrower. If the borrower doesn't pay, the co-applicant/guarantor, if any, has the legal obligation to pay. If the co-applicant/guarantor doesn't pay, it will be reported to the credit bureaus. As a result, their credit score will take a hit. Legal action: In spite of repeated reminders, if the borrower doesn't pay, the bank will initiate legal action by sending a legal notice. If there is a co-applicant/guarantor, they will also be sent a legal notice. If there is no response to the legal notice, the bank will file a recovery case against the borrower. Getting new credit will be difficult: Once a personal loan default is reported to the CICs, it will stay there in the borrower's credit report for years, unless the borrower takes corrective action. It will make it difficult for the borrower to get any new loans or credit cards. Even if a bank decides to give a loan to the borrower, it may charge a higher interest rate. Some banks may insist on collateral as a risk mitigation measure. If you are facing financial difficulty, and are unable to repay the personal loan EMI, you may communicate the same to the bank. Check with the bank if it can offer you temporary relief in the form of a moratorium for a brief period. The other option is to ask the bank to restructure the personal loan and increase the loan tenure so that the EMI amount decreases. The lower EMI amount can reduce the financial burden during a financial crisis, till it is overcome. When you take a personal loan, right from the beginning, you can take the following proactive steps. Manage an emergency fund: You must always maintain an emergency fund to handle any unexpected or unplanned medical or other financial emergencies. In a particular month, if you are unable to pay the personal loan EMI due to any financial issue, you can dip into the emergency fund to pay the EMI. However, make sure to replenish the emergency fund, once the emergency is taken care of. Maintain some extra amount in the savings account: As a precautionary measure, you can maintain some extra money in the savings account from which your personal loan EMI is debited. The extra amount can be equivalent to one to two EMIs. The extra amount will come in handy if you are not left with sufficient or any money in a particular month to pay the personal loan EMI. In such a month, the extra money maintained in the savings account can be used to pay the personal loan EMI. Uncertain and unexpected events like a job loss, salary cut, salary delay, or any other event can lead to a financial drain. While you cannot prevent these events from occurring, you can be prepared to cushion their financial impact. During such events, you can fall back on your buffers like an emergency fund to pay for your regular expenses, personal loan and other loan EMIs, and sail through till the event passes. A personal loan EMI default is a major event and has far-reaching financial, legal, and psychological consequences. Hence, it is best to be prepared with buffers, so that you can use them during financial uncertainties to prevent a personal loan payment default. Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.

RBI looks to ensure uniformity in credit bureau data quality
RBI looks to ensure uniformity in credit bureau data quality

Economic Times

time04-07-2025

  • Business
  • Economic Times

RBI looks to ensure uniformity in credit bureau data quality

The Reserve Bank of India is reviewing credit bureau operations. This aims to improve data consistency and transparency for customers. A working group is addressing concerns from financial institutions. Suggestions include uniform data standards and a common grievance portal. The RBI also wants quicker complaint resolution and more frequent credit data updates. A unique borrower identifier is also under consideration. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads ( Originally published on Jul 04, 2025 ) New Delhi: The banking regulator is examining suggestions to further streamline credit bureau processes and reduce information asymmetry with lenders, a move aimed at addressing data inconsistency and transparency for customers, said people familiar with the development."A technical working group has been formed by the RBI (Reserve Bank of India) to address concerns raised by financial institutions related to credit information companies (CICs)," said an executive, who did not wish to be identified.A senior public sector bank executive said the four CICs - TransUnion Credit Information Bureau (India) Limited (TransUnion CIBIL), Equifax, Experian and CRIF High Mark - have given some suggestions to the RBI to ensure data uniformity and also to set up a common grievance redressal portal."There is a need for some more common standards among CICs so that there is a uniformity relating to data quality index (DQI), and also for looking into the records of inactive or written-off customers," the executive said, adding that a single-window platform for data submission can also be emailed to the RBI did not elicit a response till press RBI has extended the alternative grievance redressal mechanism under the Reserve Bank-Integrated Ombudsman Scheme, 2021 to cover grievances against this week, RBI deputy governor M Rajeshwar Rao said a key challenge is identity standardisation and that CICs rely on credit institutions to provide accurate and validated IDs. "There is a need to move towards a unique borrower identifier , which is secure, verifiable and consistent across the system," he said, addressing the TransUnion CIBIL's Credit Conference in RBI has been taking up with CICs the issue of quick disposal of complaints raised against them. In 2023 it had mandated that complainants are entitled to compensation of ₹100 per day if their complaint is unresolved within 30 days from the initial RBI deputy governor, in his speech, also said that CICs must aspire to more frequent updates of credit data, as against the current fortnightly interval.

RBI looks to ensure uniformity in credit bureau data quality
RBI looks to ensure uniformity in credit bureau data quality

Time of India

time04-07-2025

  • Business
  • Time of India

RBI looks to ensure uniformity in credit bureau data quality

New Delhi: The banking regulator is examining suggestions to further streamline credit bureau processes and reduce information asymmetry with lenders, a move aimed at addressing data inconsistency and transparency for customers, said people familiar with the development. "A technical working group has been formed by the RBI (Reserve Bank of India) to address concerns raised by financial institutions related to credit information companies (CICs)," said an executive, who did not wish to be identified. A senior public sector bank executive said the four CICs - TransUnion Credit Information Bureau (India) Limited (TransUnion CIBIL), Equifax, Experian and CRIF High Mark - have given some suggestions to the RBI to ensure data uniformity and also to set up a common grievance redressal portal. "There is a need for some more common standards among CICs so that there is a uniformity relating to data quality index (DQI), and also for looking into the records of inactive or written-off customers," the executive said, adding that a single-window platform for data submission can also be explored. Queries emailed to the RBI did not elicit a response till press time. The RBI has extended the alternative grievance redressal mechanism under the Reserve Bank-Integrated Ombudsman Scheme, 2021 to cover grievances against CICs. Earlier this week, RBI deputy governor M Rajeshwar Rao said a key challenge is identity standardisation and that CICs rely on credit institutions to provide accurate and validated IDs. "There is a need to move towards a unique borrower identifier , which is secure, verifiable and consistent across the system," he said, addressing the TransUnion CIBIL's Credit Conference in Mumbai. The RBI has been taking up with CICs the issue of quick disposal of complaints raised against them. In 2023 it had mandated that complainants are entitled to compensation of ₹100 per day if their complaint is unresolved within 30 days from the initial filing. The RBI deputy governor, in his speech, also said that CICs must aspire to more frequent updates of credit data, as against the current fortnightly interval. Economic Times WhatsApp channel )

RBI's big order on CIBIL score! asked credit information companies to update…, will this benefit or harm you?
RBI's big order on CIBIL score! asked credit information companies to update…, will this benefit or harm you?

India.com

time02-07-2025

  • Business
  • India.com

RBI's big order on CIBIL score! asked credit information companies to update…, will this benefit or harm you?

The Reserve Bank of India (RBI) has issued a major directive regarding CIBIL scores, which are crucial for availing loans. The RBI has mandated that CIBIL scores must now be updated in real-time. It stated that this move will make the loan disbursal process more transparent and efficient, ultimately benefiting customers. RBI Deputy Governor M Rajeshwar Rao has asked credit information companies like TransUnion Cibil to switch to real-time data reporting from fortnightly at present. RBI On CIBIL Score Speaking at a conference organised by Cibil here on Tuesday, Rao said quicker relaying of data from the CICs will help in deepening trust, efficiency and transparency in the system for everybody. 'We must aspire to more frequent updates. Real-time or near-real-time credit reporting will improve underwriting precision, enable timely reflection of borrower actions like loan closures or repayments and deliver a superior consumer experience,' Rao said. Admitting that this entails costs because of investments in technology, process reengineering, and change management, Rao underlined that the benefits will far outweigh the costs. Whom Will It Benefit? This is a significant relief for those seeking home loans, personal loans, or auto loans. In its latest order, the RBI said that information related to CIBIL scores must now be provided in real-time, as opposed to the earlier practice where companies updated it once every 15 days. This decision is expected to offer considerable benefits to loan applicants. Rao also asked the CICs and other companies competing with Cibil, including Experian and CRIF High Mark, to move towards having a 'unique borrower identifier', which is uniform across the system. 'Another key challenge is identity standardisation. CICs rely on credit institutions to provide accurate and validated IDs. Without this, duplication and misreporting remain risks,' he said, explaining the rationale for having such a system. Rao also exhorted the industry to ensure that innovation is 'responsible and accountable', and not at the cost of an individual's rights to data privacy. (With Inputs From PTI)

RBI calls for real-time reporting, alternate data for credit access
RBI calls for real-time reporting, alternate data for credit access

Business Standard

time02-07-2025

  • Business
  • Business Standard

RBI calls for real-time reporting, alternate data for credit access

There is a need for real-time or near real-time credit reporting—rather than the current fortnightly system—to improve underwriting precision, enable timely reflection of borrower actions such as loan closures or repayments, and deliver a superior consumer experience, said M Rajeshwar Rao, Deputy Governor of the Reserve Bank of India (RBI). 'Currently, credit data is refreshed on a fortnightly basis. We must aspire to more frequent updates. Real-time or near real-time credit reporting will improve underwriting precision, enable timely reflection of borrower actions like loan closures or repayments, and deliver a superior consumer experience,' Rao said in a keynote address delivered at TransUnion CIBIL's Credit Conference on July 1. According to Rao, the shift from fortnightly to real-time credit reporting requires investments in technology, process re-engineering and change management. 'But the rewards—transparency, efficiency, and trust—far outweigh the costs,' he said. CICs are independent third-party institutions that collect and compile financial data on individuals, including loan details, credit card history, and other credit-related information. This data is shared with member institutions, typically banks and non-banking financial companies (NBFCs), who use it to make informed loan decisions. Rao highlighted that since data quality is the bedrock of responsible lending, the RBI has mandated that CICs must provide a data quality index score to credit institutions (CIs) on a monthly basis to help improve the quality of submissions. He also flagged 'identity standardisation' as a key challenge, as CICs rely on CIs to provide accurate and validated identity details. 'We must move towards a unique borrower identifier—secure, verifiable, and consistent across the system,' he said. Rao noted that while CICs play a critical role in reducing information asymmetry and improving credit decisions, the digitisation of financial services and electronification of records has created a vast repository of data. 'This, coupled with the growth of fintechs and innovation in financial services, has created business opportunities to harness alternate data sets in order to better understand financial behaviour and creditworthiness. These insights can provide a richer perspective than conventional analysis and bolster financial inclusion,' he said. He added that CICs also have a significant role in enabling credit to the MSME sector. 'When commercial credit reporting is efficient, creditors need to rely less on relationship lending and soft information, and more on facts and fact-based analysis via credit reports and related products,' he said. Speaking on the Unified Lending Interface (ULI)—the latest addition to India's Digital Public Infrastructure to simplify and democratise credit access—Rao said one of ULI's standout features is its ability to tap into alternative digital data, enabling access to credit even for those without formal financial histories. 'Going forward, the potential for ULI to harness data from e-commerce platforms and gig economy apps could open new doors for credit inclusion for small sellers, delivery workers, and freelancers,' he said. Rao also highlighted that the rise in India's household debt as a percentage of GDP—43 per cent in 2024—has been fuelled more by an increase in the number of borrowers than by a rise in average indebtedness. He cautioned that the use of complex artificial intelligence (AI) and machine learning (ML) models in credit processes brings model risk, particularly when these models are not thoroughly tested, validated, or monitored for bias and performance drifts. 'Rigorous validation protocols, continuous monitoring, and robust governance frameworks are essential to ensure that these models remain fair, transparent, and aligned with regulatory and ethical standards. Innovation must be guided by the core values of integrity, transparency, and public service,' he said. With the rapid integration of AI and ML into credit delivery, Rao said it may not be long before what is now called 'alternate data' becomes mainstream for extending credit to those previously deemed 'ineligible'. He noted that microfinance will be one of the biggest beneficiaries of AI and ML adoption. Rao also pitched for tokenisation—the digital representation of financial or real assets on a programmable platform—as a tool to improve credit delivery. 'It could favour small and medium enterprises' (SMEs') access to credit by narrowing the information gap. Further, SMEs could improve their collateral offering by tokenising real assets or trade receivables, thus improving their standing in the credit markets,' he said.

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