Has the pandemic-induced financial strain led you to default on your loan payments?

If yes, it's imperative to cease such actions immediately! Loans have played a pivotal role in the life of the average middle-class Indian, with a majority of individuals having availed home loans or personal loans for various purposes, ranging from dream weddings to smaller expenses like smartphones.

However, in the current challenging scenario, individuals are grappling with both physical and financial struggles. During times like these, a well-managed loan can serve as a financial lifeline. Nevertheless, without prudent planning and execution, it can transform into a nightmarish situation. If you're contemplating defaulting on loan repayments and are anxious about the consequences, don't worry—Subspace has you covered.

Consequences of Loan Default:

1. Credit Score Deterioration:

Defaulting on payments will adversely impact your credit score, which serves as a mark sheet of your credibility. A credit score is a reflection of your performance with loans and borrowings, calculated based on reports shared by lenders with credit rating agencies such as CIBIL, Experian, CRIF, and Equifax. Even a slight delay in repayment can impact your credit score, with a significant effect if the default extends beyond the 30-day mark. A low credit score can hinder your ability to obtain new loans, meet funding requirements, and, at times, secure rented property. Insurance companies also consider your credit score when determining policy premiums.

2. Legal Action Against the Defaulter:

In the event of defaulting on a secured loan, the lender has the authority to sell your mortgaged asset to recover the principal, interest, fees, and penalties. For instance, in the case of a home loan default, a house may be auctioned for the recovery of the loan amount and associated damages. In the case of an unsecured loan, typical for personal loans, the lender may impose late fees while filing a suit for recovery in civil court. If the default is proven to be willful, the lender can also initiate criminal proceedings.

3. Consequences for Co-signer and Guarantor:

The repercussions faced by the primary borrower upon defaulting on a loan extend to co-signers and guarantors. Their credit scores will plummet, legal notices will be received, and they may be required to appear at hearings. This negatively impacts relations between the borrower, co-signer, and guarantor, affecting future transactions.

4. Accumulation of Dues:

After defaulting, you may end up paying more than the scheduled amount, including late fees, legal fees, penalties, etc. In some cases, the defaulter pays a sum exceeding 125% of the outstanding balance.

5. Unwanted Visitors:

Representatives from your lender may show up at your door once you default on payments despite reminders. This can create an embarrassing scene at your home and lead to a loss of reputation in society.

Avoiding Loan Defaults:

Consider these preventive measures before committing to a loan default:

1. Enhance Financial Planning:

To preemptively prevent the possibility of defaulting on a loan, plan your finances more efficiently.

2. Request a Lower EMI:

If anticipating difficulties in meeting a loan payment, inform your bank about your financial status and request a decreased EMI. The bank may extend your loan period or convert your loan from unsecured to secured to reduce EMIs. Changing the loan status from unsecured to secured is often a better option, as it results in a lower interest rate.

3. Partial Payments:

Making partial payments toward EMIs and interest rates is an effective way to reduce the financial burden. This ensures you repay the loan entirely through EMI payments. Partial payments are an option when you have an active personal loan and surplus funds remaining after tax.

4. Request a Break from EMI:

Approach your bank and request a break from EMIs when your income has been interrupted. Many banks honor such requests made by customers facing job loss or temporary business closure. Banks typically waive EMI payments for 3-6 months, after which you must resume payments.

Conclusion:

Communication is key. In case of an anticipated delay, keep Subspace informed about the situation. Avoiding communication will exacerbate the situation. Provide Subspace with a timeline for when the dues will be paid, and they are likely to refrain from taking coercive action.

The final verdict underscores that defaults not only waste time and money but also erode the reputation and credibility built over years. As a vigilant individual, consider these factors before deciding to default on your loan. Visit Subspace for more information.