It is common for people to take loans to finance major purchases like a house or car or pay for a medical emergency. Paying back the loan by way of EMIs certainly impacts one’s cash flows. Even if one is sure of affording the regular EMIs there are certain situations beyond our control which may put a strain on our cash flows. A loss of job or an accident may affect our ability to honour these commitments in a timely manner. Repeated failures to make the repayments as per schedule, strains our relations with the lender. The collateral used to take the loan (if any) is repossessed and our credit score takes a beating.
But will it mean that our name enters a CIBIL defaulter list? Does it mean that we our blacklisted by all lenders? What are the consequences of such an event? Let’s find out!
Banks send all the credit related information of borrowers to CIBIL and other credit rating agencies. CIBIL records the entire credit history of all loan accounts end to end. It is a depository of information of all the payment records. This information is used to generate a credit information report and calculate a credit score. Your future loan applications get approved only if your credit score is favourable. Defaults on payments will lower your credit rating. But CIBIL does not maintain any specific loan defaulter list of its own. It solely maintains the credit history as reported by the member institutions. It shares the credit score and credit report of individuals to credit institutions who wish to check them before approving any loan application.
The banks on the other hand do maintain a loan defaulter’s list. They keep a record of their bad loans and even share this information with the credit bureau. So if your name enters the banks defaulters list, it will be shared with the bureau. Other banks can access this information too. So if you default on a loan with a particular bank, you may not have an option of moving to another bank. While getting listed in the defaulter’s list of one bank does not necessarily mean that you will not get a loan from other banks, but you will need to give a satisfactory reason for the default. In this digitized age there are little chances of escaping your past mistakes.
Hence if you find yourself in a situation where it is getting difficult to meet your monthly obligations, running away from the lender is the last thing that you should do. If you have had a clean record of past EMI payments and an unfortunate turn in your life has put a strain on your finances, then discuss it with your lender. If the bank finds your case genuine you may be able to work out a feasible solution that suits both of you. If the quantum of EMI is becoming unmanageable you may request for an increase in the loan tenure. If you think that your cash flow situation may improve in the near future, you may ask for deferring the payment for a few months.
Do not run away from the problem. If the bank thinks that you are not serious about repaying your obligations your name will appear in their loan defaulters list. It is better to engage in a dialogue with the bank and seek some temporarily relief. Then you can work out ways to improve your cash flow problems. Defaults on your loan obligations will only hamper your credit profile and make your future financial life miserable. Once your name enters the bank’s loan defaulter list it is not easy to remove it. Hence it is better to take timely action than to repent later.