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Actions That Can Be Taken Against A Personal Loan Defaulter In India

A personal loan is an unsecured loan that is used for several purposes such as covering medical expenses, pursuing higher studies,\ and organising a wedding. Apart from that, individuals can avail a personal loan to renovate a property or plan a vacation.

But there are questions as to the consequences faced by a borrower when the loan is not paid within a stipulated period. Is there any punishment involved for non-payment of the loan amount?

Whenever we apply for a personal loan from a bank or financial institution, the borrower is liable to clear the loan as per certain terms and conditions. However, when there is a default in loan repayment, there are quite a few legal actions taken for not paying the personal loan in India.

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The most common legal actions taken against the borrower are:

  • Banks have the option to file a summary suit as per Order 37 of the Civil Procedure Code, 1908. Rule 1 sub-rule 2 implies that order 37 is associated with hundis, promissory notes and bills of exchange in written contracts wherein a plaintiff holds the right to recover debts.
  • If the borrowers turn a blind eye to notice and fail to approach the concerned lender, they will send an additional notice stating that post-dated cheques will be shared with the bank on a specified date. However, one should make sure there is sufficient balance in their account to process the cheque.
  • According to the guidelines laid down by the Reserve Bank of India (RBI), personal loan defaulters will be charged as a criminal if the cheque bounces. This is mentioned under section 138 of the Negotiable Instruments Act of 1981.
  • Personal loan defaulters will be acquitted under section 420 of the India Penal Code, i.e. Life Imprisonment. This will have a negative impact on the credit history and hamper the ability to apply for a personal loan in the future. The best option is to avert default payments by maintaining emergency funds.
  • Failure to clear the loan repayment forces the lender to file a case against the borrower as per Section 138 of the Negotiable Instruments Act, 1881. At times, borrowers might be facing inevitable circumstances that prevent them from repaying the loan amount like the failure of the business or a similar one, which is beyond the limit of a borrower.
  • If a borrower fails to pay the EMI even after serving a legal notice by the lender, they send executives to your doorstep to recover the outstanding amount.

What Happens When There Is A Default Loan Payment?

If a borrower is unable to clear loan payment within a stipulated period, it might have a drastic impact on their credit score. Apart from that, they will not be able to apply for a loan in the future.

The punishment for not repaying the loan amount is based on whether the loan is secured or not. If in case the personal loan is secured, it implies that they are supported by collateral securities such as a car and it could be seized.

On the contrary, if the personal loans are unsecured, borrowers might have to undergo wage garnishment, a legal proceeding that forces your employer to hold a part of the disposable income to repay the debts.

  • If a borrower shows negligence in repaying the loan amount, their credit score would gradually reduce by 100 points.
  • Borrowers would face trouble in availing loans in the years to come.
  • There are complications concerning securing an attractive rate of interest if even an individual succeeds in procuring a credit.
  • Wage garnishment comes to light in the case of an unsecured loan.
  • Non-payment of secured loans implies seizure of properties.

Ways To Get Personal Loan Back On Track

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  • The best option is to approach a lender and discuss a temporary payment plan to help you get back on track. For instance, if you have defaulted loan payments twice, the concerned lender could split them and include them in the coming 6 or 12 months of loan EMI’s.
  • You may consider going for a debt consolidation plan that primarily dealt with combining all types of debt and writing it off using a new loan.
  • Debt consolidation does not mean that the entire debt is erased; a borrower is still liable to repay the whole amount. However, it is a good option as it ensures a seamless repayment process while saving a considerable amount of money.
  • Try to avoid default loan EMI’s and stick to a budget plan.

In addition to the above-mentioned, a default loan payment is subject to the following:

  • Creditors provide a grace period to the borrowers in case of default loan payment within 30 days. Note: No additional fees are levied.
  • When a borrower fails to repay the loan amount within 60 days, the concerned lender would charge late fees and approach you if the borrower has not responded.
  • Likewise, if you are unable to clear EMI’s after 90 days, it would affect the credit score. The concerned lender will keep contacting you.
  • The lenders are forced to file a lawsuit against the borrower after 90 days.


Personal loans are exclusively meant for those who are facing a financial crisis and, therefore, they have to repay the same within a stipulated period. Before applying for a personal loan in India, one should make sure that they can clear the outstanding dues complying with the terms and conditions. Individuals should make sure that there are no default payments.

Borrowers must be prudent while picking a lender since each financial institution and banks provide a rate of interest at varying rates. Therefore, applicants can ensure a hassle-free personal loan from one of the best loan providers in India, Money view. They offer flexible repayment tenure with an attractive rate of interest.

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