Defaulting can seem like a rather steep risk factor when taking out a personal loan. While this action can have rather serious consequences, there are many ways of avoiding it. So take a deep breath and read on to learn about the basics of dealing with a personal loan default.

Avoid Loan Default

The risk of defaulting on a personal loan is enough to turn anyone away from applying, but taking the right measures when initially selecting your loan can help you avoid defaulting in the future.

Begin by searching for a personal loan interest rate that you’re comfortable with. This might require some extensive research, but the long term benefits of this effort can help you later on.

To make this process easier, you can find financial institutions that allow you to apply online for a personal loan. This can considerably reduce the amount of manual labour and paperwork involved with conventional applications.

Paying your EMI every month is absolutely essential to avoid defaulting on your personal loan. While there are many tools that you can use to determine this monthly payment, you can make use of an online EMI calculator to calculate your EMI for your personal loan.

The Consequences of Defaulting

There are several major consequences of defaulting on a personal loan. These results differ depending on whether you have any type of collateral tied to your loan through either a secured or unsecured loan.

Drop in Credit Score: Your credit score drops for every 30 days that you miss a payment. Next to bankruptcy, a default is the second hardest-hitting blow to your credit score.

Seizure of Assets: If you’ve taken out a secured loan, the lender has the right to seize your collateral if you default.

Legal Action: If you’ve taken out an unsecured loan, the lender might take legal action against you to obtain the debt that is still owed to them.

Each of these outcomes is severe in its own nature, making defaulting something to take very seriously before accepting a personal loan.

Managing Loan Default

If you find yourself in a situation where defaulting might be inevitable, here are a few tips on how to manage personal loan defaults.

Be Honest with Your Lender: Keep your lender informed about the current problem that you are facing. Be honest and upfront, and continue to answer calls and any other form of contact from your lender as usual.

Change Your Loan Terms: Most lenders are flexible when it comes to renegotiation of EMI’s, increase of tenure, etc. Discuss different options with your lender to see if you can reach an agreement.

Take a Short Payment Break: Your lender might agree to defer your payment for a specified amount of time for a penalty fee.

These are a few options to choose from if you find yourself unable to make your EMI payments for a longer period of time.

Author's Bio: 

Arwind Sharma a passionate writer on finance and closely associated with financial companies. Know about the consequences of defaulting on a personal loan..