Missed a personal loan EMI? Its impact on your credit score is more serious than you think —here's why

When you miss an EMI on your personal loan, it might seem like a minor slip-up. Still, keep in mind that it can trigger a chain of consequences that affect your credit health and future borrowing potential.

Sensible borrowers should always strive to ensure that they never miss any due dates or pending debt payments. This is crucial to ensure that their credit profile remains credible and clean.

Missing a personal loan EMI essentially indicates financial weakness, a lack of planning, and poor management on the part of the borrower. This is a big negative in the eyes of the lending institution. Furthermore, keeping the above factors in mind, here’s what every borrower should understand.

An immediate hit on credit score

1. Even missing one EMI can result in a 50 to 70-point drop in the borrower's credit score.
2. Further, a delay of a month, i.e., 30 days, can result in a drop of up to 90 to 100 points or more, depending on your recent credit history.
3. Payment history has a direct relationship with one’s credit score. That is why a high credit score means a clean payment history.
4. Leading credit bureaus, such as CRIF High Mark, CIBIL, Experian, and Equifax, provide these credit scores. Further, missed payments can appear on your credit report for several years.

Rising penalties, default risks and long-term damage

• Missing or late payment charges generally range between 1% and 2% of the overdue EMI. This comes along with the penal interest expenses on the outstanding amount.
• The loan may be classified as an NPA, i.e., Non-Performing Asset, if it remains unresolved beyond 90 days. This can severely damage one’s credit profile.
• Failure to meet personal loan EMI deadlines might result in recovery action against the borrower.
• Collection calls, text messages, and direct confrontation, followed by legal proceedings under various provisions of the Indian Contract Act and the Indian Constitution, may be taken in extreme cases.
• A bad credit record, along with a default, remains on your credit report for several years. This makes applying for and securing new personal loans, home loans or credit cards complicated and very difficult.

How can you protect your credit integrity from slipping?

To ensure that your credit integrity remains intact, you should:

1. Set up an auto-debit facility for meeting your personal loan EMIs. The entire focus should be on not missing due dates.
2. If you have doubts or are facing stress due to your inability to meet debt obligations, never panic; you are not alone.
3. Reach out to a certified financial advisor and discuss your problem clearly.
4. Contact your lending institution immediately to request restructuring or a moratorium, rather than defaulting silently. Open communication is fundamental in such situations.
5. Try to maintain an emergency fund, focusing on covering at least three EMIs to cushion unplanned income shocks.
6. Consistently review and check your credit report for errors. If you find discrepancies, please contact your respective credit bureau promptly.

Aspiring borrowers should clearly understand that missing a personal loan EMI is far more than a minor inconvenience. It can result in a substantial loss of your credit integrity and a serious drop in your credit score. Furthermore, a weak credit profile can also result in increased borrowing costs on future loans, which is why being proactive can save borrowers from major financial trouble later on.

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