5 Consequences that You Have to Face for Defaulting a Personal Loan

A personal loan is one of the most beneficial financial products that can help align finances effectively. Choosing a personal loan can help meet urgent financial obligations without any worries.

Borrowers can choose the repay their loan amount as per the repayment capacity through EMIs. Every personal loan comes with a financial commitment to repay the outstanding amount.

Borrowers must comply with the terms and conditions of the loan to avoid default. Choosing the best personal loan rates and the right EMI amount is crucial after assessing factors such as projected income, expenses, existing loan obligations, etc. 

Defaulting on loan repayment can have grave legal and financial repercussions. Read on to learn more about defaulting on personal loan default and its consequences.

Understanding a Personal Loan Default

In the financial world, the term default is used for situations where borrowers fail to comply with the legal obligations of a loan. Failing to make the repayment through EMIs is a case of default. 

Defaulting on the repayment of a personal loan for over 60-90 days is a serious concern for lenders. After a period of 90 days, the financial institution can issue a notice and take legal action against the defaulter. 

It is also crucial to note that defaulting on a personal loan for such an extended period can damage a person’s creditworthiness and reduce the credit score significantly.

5 Consequences of Defaulting on a Personal Loan

The lending institution which has offered the personal loan can take various actions against the defaulters. The extent of financial and legal damage depends on the terms and conditions of the loan. 

Let’s take a quick look into some significant consequences of defaulting on a personal loan.

A major dip in the credit score

Defaulting on a personal loan for an extended period can seriously damage the borrower’s credit score. A credit score is a 3-digit number that can range between 0 to 900, depending on the person’s credit history. 

It is a quantitative measure used to compute a person’s creditworthiness. A higher credit score indicates better creditworthiness. Multiple factors are considered before calculating the credit score. 

Repayment of the borrowed credit has the maximum weightage. Therefore, defaulting on a personal loan can seriously dip the credit score.

Reduces the future borrowing capacity

Defaulting on a personal loan will lead to a decrease in the credit score. Your credit report will also show that you have defaulted on a loan. This will limit the borrowing capacity of defaulters in the future. 

Lenders will perceive borrowers who have defaulted on a loan in the past as high-risk candidates. Therefore, they can limit the loan amount for past defaulters. Lenders can also increase the interest rate on these loans to hedge their risks. 

In short, your borrowing capacity will be pretty limited in the near future. Also, you won’t be eligible for great loan offers and the best personal loan rates. In some cases, defaulters are unable to get any amount of loan, given their poor track record.

Debt accumulation

Not repaying the borrowed amount punctually as per the agreed terms and conditions of the loan can lead to a massive debt pile. This can also lead borrowers into a debt trap. 

Defaulting a loan obligation means adding more burden on the next payment cycle. You will have to pay additional interest charges and late fees (if any) for defaulting along with the last outstanding amount. 

If you keep on defaulting for a more extended period, the debt will amplify, and this will put more strain on your finances.

Legal consequences

In case of default, the lender can issue a legal notice to borrowers and take matters to court. The lending institutions have several legal ways to recover the borrowed amount. 

However, they don’t take such extreme actions in the first 2 to 3 months to maintain a healthy relationship with the borrowers. 

However, after a duration of 90 days, they might exercise their legal rights to recover the loan amount. It is vital to avoid these legal hassles and repay the outstanding balances timely.

Confiscation of collateral

Some lenders might ask prospective borrowers to pledge collateral for issuing a personal loan. In this case, there is an added risk for borrowers. 

It is important to note that defaulting on a personal loan for an extended period can lead to confiscation of the security/collateral offered. Therefore, you must not default on secured loans at all.

However, new-age lending institutions offer collateral-free personal loans that reduce the risk to some extent. However, you must always repay the loan amount timely. A personal loan EMI calculator can help you find a suitable EMI amount.

Is It Good to Fund Your Investment with a Personal Loan?

With the rise of available loans and investment options in India, an increasing number of investors seem to opt for unsecured loans to invest in equity funds and Initial Public Offers to earn a profit and repay the loan. As the equity market stabilizes in the last fiscal quarters and the Sensex reaches an all-time high, people are capitalizing borrowed money to earn a substantial return against their investment.

There are certain things that an investor should look out for before they put borrowed money into investments. They should know about the best short term investments, along with the benchmark index to earn the maximum returns at the end of each year.

Is it right to fund your investment with a loan?

You can fund your investment options in India with a loan if you take care of a few things. For example, you should not put your money into an investment scheme that will mature after your credit is due. You should also consider whether the return on the investment is higher than the sum of credit. If the benchmark index (Nifty) shows returns of at least 13% annually, you will earn approximately 24% on your investment portfolio for the years ahead.




A personal loan is one of the best options if you want to invest the borrowed money. Personal loans come with various features and benefits that can assist you to earn the highest against your investment. Financial institutions offer flexible tenors on this type of unsecured loans, which puts less strain on your finances and eliminates any worries about losing an asset in case you fail to repay in time.

Things to look out for before investing

If you are looking for how to apply for a personal loan to invest the funds, you should check out a few precautions before you invest that money in the market. Let’s take a look.

• Have an alternate source of income – Financial experts suggest borrowers to have an alternative source of income to pay the EMIs if they plan to invest the funds from such loans into investment options in India. Systematic withdrawal from the market to pay the EMI can prove detrimental if you want to earn a high return.
• Carefully choosing the investment plans – Ideally, you should invest in the best investment plans for 3 years or 4 years. These often carry stock options that are fundamentally strong, and you also won’t have to pay for short-term capital gains.
• Check the loan rates – The interest rates on a personal loan play a critical factor to determine you get a substantial return. If you choose an advance with a high rate of interest, you will have to hand over a significant amount of money to the lender when the payment gets due. You will also pay larger EMIs during the repayment tenor.
• Opt for low interest rate personal loans - To earn the best returns without straining your finances during the loan tenor. You can use a personal loan EMI calculator to determine a preferred monthly installment rate for repayments.
• Know about additional charges and fees – Along with the interest rates, you should also learn whether a lender asks for any fees and charges. Ideally, you should check it while you look for your personal loan eligibility criteria.

Various financial institutions charge a minimum processing fee and interest rate on personal loans.

• Know about the investment option – Before you invest in a particular stock or mutual fund, know how it performed since it was introduced to the market. It will help you shortlist the best investment options in India and prevent you from losing money.
• Understand the risk level – Certain investment schemes come with more risk but higher returns. You should opt for a scheme that you are comfortable with. For example, if you prefer a safer investment with guaranteed returns, you can put the money in fixed or recurring deposits or government debt bonds.

Investments via funds from a personal loan should be a careful and deliberate task with proper planning and strategies. While it is easy to meet a personal loan eligibility, you should consider the pros and cons of the credit along with the investment option itself to ensure a guaranteed gain.

Do's And Don'ts Of Using A Home Loan EMI Calculator

EMI calculators no doubt are a great tool to help you plan the finance before you dive into loans. It helps you to forecast and plan about how much you are going to borrow and how you will manage the EMIs. 

Most of the times, using EMI calculators can be a bit confusing. Thus, there are certain steps that you must keep in mind when using a Housing Loan EMI calculator.

EMI Calculator

Loans in today’s time have become one of the important factors in buying a property or a finished house. And as per the current market status, there are a variety of options which you can choose from. 

However, a properly selected loan plan will help you avail a Home Loan in a hassle-free manner. It is essential that you select the right loan product as it can help you save much money in the long run.

In the terms of a loan, savings are a result of interest that you save on the EMIs. An EMI is an amount which you are required to pay every month once you have availed the loan. 



It depends on three variables – the amount that you borrow, the tenor of which you have borrowed and the rate of interest which is being provided by the lender. 

Most of the people used to calculate the EMIs manually, however, with recent technological transformations, you can use Home Loan EMI calculator and get the results within a second. 

If you have not used a Home Loan calculator before, here are a few do’s and don’ts that you must follow:

Do’s:

Principle amount: When deciding a principal amount, it is vital that you are realistic about the choice. 

In reality, you will never get the entire loan amount. Thus, be prepared for the adjustments. Moreover, when deciding upon a principal amount, it is necessary that you are sure with the budget. 

Having a rough estimate of the construction cost and additional cost will help you plan more realistically.

Interest rate: When using a Home Loan calculator, know that the Home Loan interest rates of every financial institution differs. 

Most of the institutions determine interest based upon the amount that you are looking to borrow. When it comes to interest rate, credit score plays a vital role. 

Most of the banks have a tentative bracket on their website, make sure you are well-versed with the interest rate that you preferred lender is offering.

Loan Tenor: A loan tenor varies from bank to bank. Some are open to providing a Home Loan of 20 years whereas others can provide a Home Loan of up to 30 years.

Don’ts:

Sticking to a single calculation: While using an EMI calculator, it is important that you check all the websites and do not just try a single loan calculator.

Do not bank completely on it: Housing Loan calculator is a great way to calculate an EMI. However, you must not rely on it entirely.

Not trying different calculations: When using a Home Loan EMI calculator, make sure that you do not just try one option and rely on it completely. Keep trying different combinations and try coming out with the best one!

Home Loan calculators help an individual to gain a fair knowledge about the overall loan process. It helps you to determine the loan amount along with the EMI calculations.