A personal loan allows you to meet all your financial needs with ease, whether it is personal, business, or medical. When you apply for a personal loan, you commit to pay Equated Monthly Instalments (EMI) for a set duration. However, situations such as job loss or a financial crisis can make it difficult to repay the loan.
If you do fail to pay even a single EMI, it can have a negative impact on your credit score and profile. It will also trigger a series of events. In this blog, we will understand what happens if you miss one EMI on a personal loan.
Fintechs have disbursed nearly 11 crore personal loans in FY25. This is during a time when the personal loan delinquency rate rose to a six-quarter high of 3.6%. It means that there are a number of borrowers who are failing to repay the loan.
Borrowers’ interests, however, are protected by the Reserve Bank of India (RBI). Before marking the account as defaulted, lenders follow a classification system called Special Mention Accounts (SMA). It measures pressure on loan accounts prior to becoming Non-Performing Assets (NPA).
During this time, a bank or Non-Banking Financial Company will establish contact with you regarding the reason for the delay. A lender (Bank or NBFC) will also offer a possible solution or exit in order to avoid marking your account as default.
Missing a single EMI affects not only your finances and credit profile but also your peace of mind and creditworthiness. Here is what happens when you miss a single personal loan EMI:
Impact on Credit Score (The Reputational Hit)
A missed EMI has an immediate impact on your CIBIL score. A lender reports to the credit bureaus.
In addition to being penalised with points against your credit score, if you miss a payment, you will also be subject to various penalties.
The first step in the recovery process occurs when an EMI payment is bounced and therefore triggers a legal response from the lender.
One of the lesser-known and most misunderstood risks of defaulting on a personal loan is loan settlement. If you miss several monthly payments and are unable to pay back the entire loan, the lender will provide you with a one-time settlement (OTS) to get back some part of the principal.
| Features | Loan Closure | Loan Settlement |
| Meaning | Full closure | Partial/Negotiated closure |
| Effect on Credit Score | Positive or Neutral | Negative |
| Credit Bureau Reporting | Stated as closed or paid in full | Marked as “Settled”. Stays on report for up to 7 years |
| Future Loan Eligibility | Enhances eligibility | Eliminates eligibility |
| Outstanding Dues | No outstanding amount | Lender can still seek the recovery of the outstanding amount |
| Impact on Interest/Charges | No extra charges | Involve waiving some interest or charges |
It’s far easier to prevent a default than to recover from one. The following strategies will help you protect your credit score from personal loan EMI delay or default:
Managing a personal loan EMI can become difficult if you have lost a job recently or are facing a financial emergency. In these situations, understanding the impact of the EMI delay helps not only plan repayment but also borrow responsibly.
The easiest way to avoid it all is by choosing a lender like DMI Finance that offers competitive interest rates and flexible repayment options. While low interest rates reduce the cost of borrowing, the flexible repayment option makes it easy to repay the loan. Apply for a personal loan with DMI Finance and get up to ₹10 lakh.
1. Will it hurt my CIBIL Score if I am unable to pay one personal loan EMI?
Yes, failure to repay one EMI will lower your CIBIL Score between 50 to 70 points. The repayment history accounts for a substantial portion of your credit report.
2. What is the difference between SMA-0 and SMA-1?
SMA-0 indicates that there has been no repayment made for 1 to 30 days from the due date. SMA-1, however, indicates that there has been no repayment for 31 to 60 days from the due date.
3. How long will a settled status be on my credit report?
A ‘settled’ loan status can remain on your credit report for a maximum of 7 years. It can make it difficult to get loans in the future.
4. Will I still be able to get a loan with a poor personal loan history?
You can, but not definitively. A poor repayment history can either lead to loan rejection or approval with a higher interest rate and unfavourable terms.
5. Are there any personal loan EMI payment grace periods?
There is no formal grace period in most personal loans. The penalties and negative reporting will typically begin when your due date has passed.
6. Can I negotiate the fee for being late on my loan payments?
Yes. If you have a legitimate reason (such as a medical emergency) and have a good standing, you can ask the bank or NBFC to waive the late fee. However, this is at the lender’s sole discretion.
7. Is there a minimum credit score I need to qualify for a DMI Finance personal loan?
DMI Finance requires a CIBIL credit report score of at least 700+ for eligibility for a personal loan.
8. What is the difference between loan closure and loan settlement?
Loan closure means you’ve fully repaid your loan as agreed, while loan settlement is a negotiated payment of a reduced amount due to financial difficulty. Settlement harms your credit score.
9. Is loan settlement a good option?
Only in extreme financial distress. It offers temporary relief but damages your credit score for up to seven years and can reduce future loan eligibility.
10. Can I remove the “settled” tag from my credit report?
It cannot be removed unless you pay the remaining amount and convert it into a “closed” status. Otherwise, it will naturally disappear after the reporting period ends.
| Personal Loan of Different Amounts | ||
| ₹50,000 Personal Loan | ₹1 lakh Personal Loan | ₹2 lakh Personal Loan |
| ₹3 lakh Personal Loan | ₹4 lakh Personal Loan | ₹5 lakh Personal Loan |
