In recent years, personal loans have become increasingly common, with more people opting for them over other forms of credit. Quick approvals and easy access have made personal loans an attractive option for many. However, financial experts are warning that this convenience could come at a heavy cost. According to recent data, personal loan borrowers outnumber those taking any other kind of loan. While they seem like an easy fix during a financial crunch, experts caution that these loans carry the highest interest rates in the market. Despite this, people are now even taking out personal loans to fund hobbies and non-essential purchases — a trend that is raising serious concerns.
“When used recklessly, personal loans can become a financial nightmare,” say banking analysts.
What Happens If You Don’t Repay?
Legal Action:If a borrower fails to repay their personal loan despite multiple reminders, banks can file a civil lawsuit. Courts may order repayment and, in some cases, even allow seizure and auction of personal property. In extreme situations, defaulters can face imprisonment.
Harassment by Recovery Agents:Banks often appoint recovery agencies when borrowers default. These agents are known to pressure defaulters aggressively. Reports have surfaced of vehicles and valuable assets being repossessed.
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CIBIL Score Crash:Defaulting on a personal loan severely impacts your CIBIL score — a crucial factor in determining creditworthiness. A poor score can make it nearly impossible to secure future loans, or only at exorbitantly high interest rates. Personal loans should be a last resort, not a go-to solution for discretionary spending. With high interest rates and serious consequences for default, borrowers must think carefully before signing on the dotted line.