How does failing to repay a loan on time make you poor, and how
to avoid it?
Nowadays, taking out a loan has practically become the norm. Loans enable us
to manage significant costs, such as purchasing a home, paying for school,
handling an emergency, or even paying for a wedding. The major harm that
results from not making timely loan repayments, however, is something that
many people ignore.
A single missed EMI (equated monthly installment) may be the beginning of a
long-term financial trap. This post explains how a minor delay can result in
major issues and, more crucially, how to prevent it.
Paying Loans Late? Here’s What It Could Cost You.
Most people notice a late fee as soon as they have missed a loan payment. This
could be between Rs 500 and Rs 1500, depending on your bank or lender. But
that's only the start.
Things start to get serious if you miss a few more payments. Your interest rate
may increase, which would raise the loan's total cost. You ultimately pay a lot
more than you initially borrowed.
However, what is the most detrimental effect? Your credit score suffers. Credit
bureaus in India, such as CIBIL, keep track of late payments. Your score can
drop by 90–100 points with just one late EMI. Additionally, it becomes
challenging to obtain new credit cards or loans once your score declines. The
interest rates will probably be significantly higher even if you are approved.
A person with a good credit history might be eligible for a personal loan at 10–
12%, whereas someone with a bad credit score might be charged 24–36% or
higher. That's a significant difference, and it gradually reduces your monthly
income, leaving less for emergencies, savings, and family necessities.
The Risk of Losing Your Assets
The stakes are even higher if you have a secured loan, such as a gold loan, auto
loan, or home loan. The lender has the right to reclaim the asset if you default.
This implies that your house could be put up for auction, your car seized, or
your gold confiscated.
This risks the stability of your family in addition to harming your financial
situation. Years of savings could be lost if you lose these assets, leaving you to
start over.
Emotional and Lifestyle Effects
Money problems don’t just affect your wallet—they impact your peace of mind
too. Constant pressure from loan repayment can cause anxiety, sleepless
nights, and problems at work or home. In many Indian families, the fear of
social embarrassment due to unpaid loans is also very real.
Some people cut spending on essentials like healthcare or their children’s
education just to pay EMIs. Others turn to risky options—like borrowing more
from friends or credit cards—to manage older debts. Unfortunately, this often
leads to a deeper financial hole.
The Long-Term Trap of Debt
One late payment might not seem like much, but it frequently sets off a
domino effect. Your take-home pay decreases as the interest accrues. People
begin to rely on credit cards or instant loan apps to handle their daily expenses.
The catch is that, particularly if they are unregulated, many of these apps
charge extremely high interest rates—some even surpass 100% annually.
Even worse, you have a lower chance of obtaining major loans, such as a home
loan or an education loan, if you have a bad repayment history. This restricts
your ability to grow and become financially independent in the future.
Simple Ways to Avoid Falling Behind
Fortunately, it is possible to avoid this trap. It only requires a little
preparation and self-control. The following are some wise practices to
adopt:
Borrow sensibly: Never take out a loan merely to improve your lifestyle
or maintain appearances. A monthly EMI should not exceed 30 to 40
percent of your monthly income.
Create an emergency fund: Ideally, you should have enough money
saved to cover three to six months' worth of expenses. If you have a
health problem, lose your job, or experience a financial downturn, this
will help you stay afloat.
To guarantee that you never forget a due date, set up auto-debit for
EMIs. For automatic payments, the majority of banks let you link your
loan to your account
Speak with your lender: Don't ignore a payment if you know you might
miss it. Give your bank a call and explain the circumstances. Numerous
lenders provide short-term relief in the form of reduced payments, EMI
rescheduling, or short payment.
Take into account loan consolidation: If you're managing several EMIs,
combine them into a single, manageable loan. In addition to clearing up
any confusion, this could even lower your interest rate.
Regularly review your credit report to identify errors and keep tabs on
your financial situation. Bring up a dispute right away if something is
incorrect.
• Ask for assistance: If you're feeling overburdened, don't be afraid to
speak with a non-profit credit counselling service or a financial advisor.
In India, many provide low-cost or free advice.
Final Thoughts
Late loan payments are more than just a small error; they can have a long-term
negative impact on your finances, credit score, and mental health. In the worst
situations, it can lead to the loss of your hard-earned assets and create a debt
cycle that is difficult to escape.
The good news is that you can prevent all of this with a little awareness and
forethought. Be organized, only take out loans that you can pay back, and don't
be afraid to ask for assistance when you need it. You and your family's future
can be safeguarded by practicing financial discipline now.
