People take loans when they need to cater to different expenses, such as buying a home or vehicle, seeking education or tackling emergencies, when ready cash is not available. Such a loan is considered defaulted when principal or interest payments have not been done for over 90 days. Borrowers may default on loans for different reasons. It could be due to adverse economic circumstances, like loss of income or added expenses that prevent them from paying EMIs on time. Whatever be the reason, once a borrower is unable to pay off their loans or EMIs, they are classified as loan defaulters or simply, defaulters.
In India and many parts of the world, the pandemic has created a sudden rise in loan defaults.
Defaults can have a severe impact on borrowers. This is because any bank uses a set of pre-defined guidelines when dealing with defaulters. At the very least, borrowers may find themselves placed on the list of loan defaulters, making it difficult to secure more credit. At the worst, the assets they have pledged may be taken over by the lender, and they may face legal action.