Summary of this article
· Missing EMIs can lead to legal action from banks
· Restructuring loans can ease repayment burdens
· A good credit score is crucial for future loans
If you have taken a loan but, due to unexpected incidents, such as a job loss or an accident, are not able to pay it back, what will happen? Not many think about it when taking a loan, but in today's time, job security is questionable, and accidents are inherently unexpected. Amid financial uncertainties, continuing the equated monthly instalment (EMIs) payments could be difficult, if not impossible, when not planned. While it is prudent to plan repaying EMIs to remain in control under such circumstances, one must also be aware of the consequences of delinquency.
According to the June 2025 CRIF report, small consumer loans, two-wheeler loans, and personal loans showed high delinquency in the first quarter of FY2025. While banks and lenders try to provide excellent loan services, they are also known to pressure borrowers into missing repayments.
What Do Banks Do To Recover The Loan?
When an EMI is missed, banks send the reminders and levy some penalty, but do not initiate the recovery process.
But if there is no repayment, banks usually send a 60-day notice to defaulting borrowers to settle the dues.
However, if there is no contact by the borrower and EMIs remain unpaid for more than 90 days, the loan becomes a non-performing asset (NPA). This is when a bank can start the recovery process, which may include legal action against the borrowers. But, usually, this is the last resort.
Why Is Loan Repayment Crucial?
A financial emergency occurs anytime, and having no other option, one can always approach banks for an unsecured loan, but for that, a good credit history is required. But a missed EMI or a loan default affects the credit score negatively, which means getting a future loan is difficult.
What Can You Do If Loan Repayment Seems Difficult?
Adhil Shetty, CEO, BankBazaar.com, says, "All borrowers are provided the opportunity and have the right to approach the bank if there is any difficulty in repaying the instalments and to choose an option to restructure their debt to enable a smooth repayment process."
So, if a bank sends notice or communicates through mail or call about the missed EMI, do not ignore it. It is important to inform the bank about your situation and discuss ways to handle it. One of the options is restructuring the loan, where banks reduce the EMIs and increase the tenure.
Shetty suggests seeking "an EMI holiday for a few months" or "increase your loan tenure", but at the same time cautions that increased tenure would reduce EMI amount, but you may end up paying a higher amount in interest. While small unsecured loan repayment failure results in a reduced credit score, secured loans can be recovered through the collateral asset, such as a mortgage loan, gold loan, etc.
What Are Borrowers' Rights?
In case of no collateral, banks use recovery agents, but they are not allowed to take coercive measures. The Reserve Bank of India (RBI) notification dated July 1, 2011, lays down rules around using coercive measures. Per the guidelines, "the lenders should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc." Shetty adds that lenders cannot simply acquire or auction the assets kept with them as collateral without providing 30-60 days' notice to borrowers. In case there is no agreement between the borrower and the bank on loan repayment conditions, they are mandated to get the valuation done from an approved valuer. The borrower still has the right to contest if the valuation seems incorrect.
This is important because even in the case of loan default and asset auction, the borrower is entitled to receive the sale proceeds in excess of the outstanding dues.
So, while the buzz around YOLO-You only live once may lead you to borrow money and spend, plan for repayment, and know the consequences and your rights in case of a default.
