Personal loan EMI default: Steps to take immediately explained

The Indian banking sector is experiencing a notable rise in personal loan defaults, especially in small-ticket loans and rural areas. Data from the Fintech Association for Consumer Empowerment (FACE) shows that loans overdue by more than 90 days increased to 3.6% by March 2025, marking the highest level in six quarters.

This pressure is particularly strong among borrowers under 25 years old and those in tier-3 and rural regions, highlighting the challenges young and new-to-credit individuals face amid growing financial obligations. Private banks have also seen an increase in bad loans, with Kotak Mahindra Bank’s non-performing assets (NPA) rising to 1.48% in the April–June 2025 quarter, reflecting stress across the sector. Banks are tightening lending standards, especially for unsecured loans, which raises the risk for borrowers.

In this environment, missing an EMI payment can negatively impact your creditworthiness and future loan approvals. Here are five important steps to take if you have defaulted on a personal loan EMI:

1. Communicate early with your lender about your financial difficulties. Discuss options such as loan restructuring or deferred payments to help manage your repayments.

2. Check if you are eligible for EMI holidays or temporary payment deferrals by contacting your lender’s customer support for guidance.

3. Consider debt consolidation if you have multiple loans, which can simplify repayment by combining them into a single loan.

4. Seek support from credit counsellors or legal professionals before the situation escalates with legal notices.

5. Keep records of all communications with your lender for future reference, especially if recovery or legal actions occur.

Defaulting on a personal loan initiates a formal recovery process. Borrowers receive default notifications followed by visits from recovery agents, in line with Reserve Bank of India (RBI) guidelines. If payments continue to be overdue beyond 90 days, the loan is classified as a Non-Performing Asset (NPA), and lenders may send legal notices or initiate civil suits.

The recovery process can be emotionally stressful. Penalties, higher interest rates, wage garnishments, or even asset seizures are possible consequences. Your credit score can drop by over 150 points within six months, making it difficult to access loans, credit cards, or other credit products in the future.

The RBI encourages amicable settlements between lenders and borrowers. Lenders must follow fair practices during recovery, and early negotiations can sometimes lead to loan restructuring or one-time settlements, avoiding lengthy litigation.

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Disclaimer: Mint partners with fintech companies for credit services, which require sharing your personal information. These partnerships do not affect editorial content. This article is intended to educate readers about the risks of credit, including high interest rates and hidden charges. We recommend consulting certified financial experts before taking any credit.