Missed personal loan EMI? Here’s how it can damage your credit score | Mint

In a nation where personal loans are considered as a lifeline for millions of people, timely repayment is not just a financial obligation but a sincere responsibility, primarily to maintain efficient credit health.

According to the guidelines of leading financial institutions and professionals, missing out on even a single monthly instalment (EMI) can set off an uncontrollable chain reaction with far reaching consequences for borrowers.

Elaborating on the same, Kundan Shahi, Founder, Zavo, says, “Skipping even one EMI can quietly damage your credit score, making future loans harder and costlier. Over time, it affects your credit health and could even invite legal trouble if left unpaid. What feels like a small miss today can snowball into bigger problems tomorrow.”

Credit score impact: Immediate and long term

A missed EMI, even if it is only a few days beyond the lending institution’s grace period, can trigger a serious drop in your credit score. This is because lenders report missed and late payments to credit bureaus on a consistent basis. That is why such a missed payment can reflect negatively on your credit profile.

Even a single miss on EMI payments can result in your credit score falling by 50 to 70 points, thus making it immensely difficult to qualify for future loans or credit cards.

Furthermore, the damage to your credit profile is not easily undone and can linger for years, impacting your borrowing capacity at a time when you need financial assistance.

Financial penalties and escalating costs

Beyond just the credit score related problems, missing an EMI invites immediate financial difficulties in the form of hefty penalties. Lenders generally impose late fees often 1 to 2% of the total overdue amount.

Sometimes even additional charges are imposed for collection efforts. Now in case the default continues then these costs compound, thus increasing the total repayment burden and making it even more difficult to catch up.

In such cases the longer the delay the harder the financial implications. Multiple missed EMIs can even push the loan into Non Performing Asset (NPA) category after 90 days, this is a very serious red flag for all financial institutions.

Legal and recovery actions

In cases where the borrower fails to respond to reminders and continues to default in such cases lenders may escalate recovery efforts. This can include even sending collection and recovery agents and in repeated cases initiating legal action under civil law.

Now loan defaults is not a criminal offence it still does not lead to imprisonment, it can though result in a civil lawsuit, recovery cases, further complicating the loan borrowers financial condition.

The entire legal process is draining, time consuming and stressful. It eventually results in eroding the creditworthiness of borrowers thus making them redundant for any future loans.

Protecting your financial future

Therefore, to avoid these difficulties and pitfalls, you should engage in proactive two way communication with your creditors. Even more so if you anticipate trouble in repaying your EMIs on time.

Several lenders provide options such as payment deferral, restructuring, or temporary moratorium for genuine financial hardships.

Due to the same, maintaining an emergency fund and efficiently planning your finances carefully before taking a personal loan can also assist you in preventing future complications and defaults.

Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.