Debt Disaster: Truth About Loan Default After 180 Days

If you would know the value of money, go and try to borrow some – BENJAMIN FRANKLIN

Ignoring loan payments for 6 months? Think again!

It’s something we all hope to avoid, but missing payments on loans can have serious legal and financial implications. 

Knowing what happens next is key to keeping your credit and future borrowing options intact.

In this blog, we’ll explore what defaulting on a personal loan is, why 180 days is a key time frame, and how you can get around or avoid such scenarios.

Understanding Personal Loan Default – When Does It Happen?

A personal loan default happens when a borrower fails to repay the EMI as per the agreed schedule.

Here’s how it progresses:

• First 30 Days: If you miss one EMI, banks send reminders via calls, SMS, and emails.
• After 90 days: The lender classifies the loan as a Special Mention Account (SMA) due to increased risk.
• After 180 days: The lender marks the loan as a Non-Performing Asset (NPA). They can take legal action.

Why is 180 days such a big deal? 

Because this is the point where lenders lose patience. They stop treating you as a late payer and start treating you as a loan defaulter. This can have serious financial and legal consequences.

What Happens Before the 180-Day Default Period?  

Before reaching the 180-day default mark, lenders usually launch several steps: 

• Reminders & Notices: Lenders send multiple reminders via SMS, email, and phone calls. If ignored, they may send a formal legal notice warning of further action. 
• Negotiation Opportunities: Inform your lender about your financial struggles. They may adjust your loan terms. This could mean a longer tenure, lower interest rates, or temporary relief.
• Recovery Agents: If you keep missing payments, lenders may hire recovery agents. They will call you for repayment and may visit your home or workplace. 

Also read: Quick Loan Solutions for CIBIL Defaulters: Your Path to Financial Assistance

Major Consequences of Loan Default After 180 Days

Crossing the 180-day threshold without repayment can lead to severe outcome: 

• Legal Action: Lenders may start legal proceedings against you. Where the court may order for repayment along with interest and legal fees. Seeking free legal advice from a legal consultant can help you navigate this.
• Credit Score Impact: Your credit score can plummet, making future borrowing challenging. Each missed payment affects your credit history, and a default can stay on your record for years 
• Asset Seizure: If your loan has collateral, the lender can seize it to recover the unpaid debt.
• Increased Financial Strain: Interest and penalties add up over time. This makes your debt grow and worsens your financial burden.

Save Yourself – Steps to Take After 180 Days

If you’ve defaulted for more than 180 days, act now.

• Seek free Legal Advice: Meet a legal consultant to know your rights and responsibilities. They can advise you on the most appropriate action and negotiate with lenders. They can also help you handle legal notice from the lender.
• Negotiate a Loan Settlement: Some lenders allow a loan settlement, where you pay a reduced amount to close the loan. This can help you avoid court cases and additional penalties.
• Financial Counselling: Meet financial counsellors to reorganize your debt. They offer solutions to bring your finances into good health and avoid future defaults.

How to Not Go into Default in the First Place?

Prevention is the best cure. Below are measures to prevent going into default:

• Budgeting: Prepare a comprehensive monthly budget to record income and expenditure. Allocate some amount for loan repayments to be paid on time.
• Emergency Fund: Develop an emergency fund to pay for unexpected expenditures. This monetary buffer can save you from missing loan repayments during unforeseen circumstances.
• Regular Monitoring: Monitor your loan accounts. Confirm EMI payments and rectify any discrepancies at once.
• Open Communication: In case you are unable to pay on time, notify your lender beforehand. They could provide options such as deferment or restructuring to suit your needs.
• Avoid Over-Borrowing: Take only what you can repay. Test your repayment ability before incurring fresh debt.

Conclusion

Defaulting on a personal loan for 180 days can push you into a financial and legal crisis. But if you act early, seek legal advice, and explore loan settlement options, you can recover and rebuild your credit.

Companies like WeCredit assist you in getting the best loan deals to suit your financial requirements.

Be aware, talk to your lenders freely, and plan your finances well to keep your credit history healthy.