A small loan might seem manageable at first — a few thousand rupees borrowed to meet an urgent need or cover a short-term expense. But what happens when repayment gets delayed or missed entirely?
Defaulting on even a small loan can have big consequences for your credit health, borrowing power, and financial stability. Let’s break down what really happens when you stop paying your EMIs.
⚠️ 1. Immediate Penalties and Late Fees
When you miss an EMI, lenders start charging late payment fees or penalty interest.
Even one missed month can lead to higher dues, and the longer you delay, the faster your outstanding amount grows.
Example:
If your ₹10,000 microloan has a 15% interest rate, a delay of 3 months could easily increase your total repayment by ₹1,000–₹1,500 in penalties and interest.
Tip: Always set up auto-debit or payment reminders to avoid accidental defaults.
📉 2. Drop in Credit Score
Your CIBIL score takes a direct hit when you default.
One missed payment can reduce your score by 50–100 points, and repeated defaults can push you below the acceptable 700 mark — making future loans or credit cards harder to get.
Impact:
Reduced eligibility for personal or business loans.
Higher interest rates on future borrowing.
Rejection of pre-approved offers.
🧾 3. Legal & Recovery Action
If repayment delays continue beyond 90 days, lenders may classify your account as NPA (Non-Performing Asset).
This can trigger recovery notices, legal action, or involvement of collection agencies.
Tip: Don’t ignore lender calls or notices. Reach out proactively to negotiate a repayment plan or restructuring option.
🏦 4. Limited Access to Future Credit
Defaulting on a small loan tells lenders that you’re a high-risk borrower.
Even if you later clear your dues, your default record remains visible in credit history for up to 7 years.
This can affect:
Your home or car loan eligibility
Approval for credit cards
Your ability to get business financing
💬 5. Emotional & Social Stress
Beyond numbers, loan defaults often lead to emotional pressure and anxiety.
Frequent lender calls, loss of trust, and financial instability can cause major stress — especially if family members or guarantors are involved.
Tip: Seek financial counseling early. Many NBFCs and MFIs now offer debt management support to help you restructure payments before it’s too late.
💡 6. Recovery and Rebuilding
Defaulting isn’t the end of your financial story — recovery is possible with discipline and transparency.
Here’s how to bounce back:
Clear dues at the earliest, even partially.
Request a “No Dues Certificate” after settlement.
Start using small, manageable credit lines to rebuild your score.
Monitor your CIBIL report every 3–6 months.
🧠 Conclusion
Small loans offer big help when managed wisely — but defaulting, even once, can leave a lasting mark on your financial future.
Remember: lenders value honest communication and consistent repayment behavior more than perfect credit.
A little financial discipline today ensures easier access to opportunities tomorrow.
❓ FAQs on Loan Defaults
Q1. How many missed EMIs count as a default?
Generally, missing three consecutive EMIs leads to default classification by most banks and NBFCs.
Q2. Can I still get a loan after defaulting once?
Yes, but you’ll need to repay the previous dues and rebuild your credit through responsible repayment behavior.
Q3. What’s better—settlement or full repayment?
Full repayment improves your credit faster, while settlements may leave a negative remark in your credit history.
Q4. How long does a default stay on record?
Defaults usually remain visible on your credit report for 7 years.
Q5. Can lenders seize my property for small loans?
For unsecured loans, lenders can’t seize property directly but may pursue legal recovery through courts.
Published on : 10th October
Published by : SMITA
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