This-is-what-happens if-you-stop-paying-your-loans

This is what happens if you stop paying your loan

By on July 8, 2020 0 520 Views

Before we justify the title and talk about loan, let’s take a look at what we call ”the fear cycle of the pandemic economy.”

Coronavirus has hit the economy hard. Because of this hard-hit, many lost their jobs. Now, because they lost their job, they are unable to pay their loans. And these unpaid loans will eventually hit the economy hard. Because of this hard-hit on the economy, many will lose jobs… And you know what’s coming next.

Now, this is what happens to the big economy if you’ll stop paying loans.


But you might be thinking now, “who cares about big things when I-myself is in trouble?”

Good question. Let’s take a look at what will happen to you personally if you stop paying loans.

What Happens When You Do Not Pay Loans

When you start to pay your loan, a large amount of the paid EMI goes as interest. Let’s understand this with examples. If your first EMI of a home loan is around Rs 25,000 and the interest rate is around 8% (if you’re lucky enough), then around  Rs 20,000 of that will go as an interest-only! Crazy, right? What’s coming next will sound crazier.


If you stop paying EMIs at the start of your loan, then not only will you have to pay for the interest for the principal amount, but also for the interest amount. Because your EMI is not just principal amount, but principal plus interest (as we’ve seen in the example).

And, you guessed it right. It basically means interest on interest. Or what the front-benchers and bankers call – Compound interest.

The further you’re from paying your loan, the more interest will accrue. A single miss in EMI, and you’ll add a number of EMIs in your loan tenure.

Now, assuming that you are too late to read this article and you’ve already skipped every EMI you could (that’s why you’re reading this article, right?), what will happen after that? How will the bank punish you? With lashes or without lashes?

You’ll have the following three options to pay the accrued interest:

  1. A one-time payment of all the accrued interest.
  2. Accrued interest will be added to your loan and your EMI amount will increase.
  3. Accrued interest will be added to your loan and your loan tenure will increase.

Most of the banks are choosing the second option by default. But, if you want to choose any other of the three options, just ping your bank and you are good to go.

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