What Happens When Your Personal Loan Becomes an NPA? Timeline, Risks and Your Options
Updated: 5 days ago
If you have stopped paying a personal loan, the date that matters most is day 90. That is when your loan is classified as a non-performing asset (NPA), and recovery usually becomes more formal. Here is what happens and what you can still do.
Key takeaways
Lenders flag overdue loans in stages: SMA-0 (up to 30 days), SMA-1 (31 to 60 days) and SMA-2 (61 to 90 days).
After more than 90 days overdue, the loan becomes an NPA.
For an unsecured personal loan, the lender cannot seize your property without a court order.
Lenders may use legal notices, arbitration, civil suits and, for bounced cheques or mandates, criminal complaints.
Restructuring or a one-time settlement can close the matter before it goes to court.
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The timeline, step by step
Days 1 to 90: early warning stages
Once an EMI is missed, the account enters the SMA (special mention account) stages. You will see late fees, penal charges and reminder calls, and the delays are reported to credit bureaus each month.
After 90 days: NPA
If dues stay unpaid for more than 90 days, the loan becomes an NPA. The lender has to set money aside for the loss, so it typically moves the account to its collections or legal team, or to an outside agency.
Later: write-off
Some lenders eventually write off long-unpaid loans in their books. That does not cancel your debt, and it shows up badly on your credit report. See what 'Settled' and 'Written off' mean on CIBIL.
What the lender can legally do
Send legal notices demanding payment.
Start arbitration if your loan agreement has an arbitration clause.
File a civil recovery suit, or approach the Debts Recovery Tribunal for bank loans of Rs 20 lakh or more.
File a complaint under Section 138 of the Negotiable Instruments Act if a cheque bounced, or Section 25 of the Payment and Settlement Systems Act if an auto-debit mandate bounced.
Report the default to credit bureaus.
SARFAESI Act powers, where a lender takes possession of property without going to court, apply only to secured loans, not to an ordinary unsecured personal loan. Being labelled a 'wilful defaulter' applies only where dues are Rs 25 lakh or more and the lender finds deliberate non-payment.
Your options once the loan is an NPA
Pay the overdue amount. If you clear all arrears, the account can be upgraded from NPA back to standard.
Ask for restructuring: a longer tenure or lower EMI that you can realistically pay.
Negotiate a one-time settlement for a reduced amount. Our OTS step-by-step guide explains the process.
Reply to every legal or arbitration notice in writing instead of ignoring it.
Lenders are often more open to settlement after a loan becomes an NPA, because they have already set aside money for the loss. That is also when having an expert negotiate for you makes the biggest difference.
Frequently asked questions
When does a personal loan become an NPA?
When any EMI or dues remain unpaid for more than 90 days.
Can the bank seize my house for a personal loan NPA?
Not directly. For an unsecured personal loan, the lender needs a court order or arbitration award, and SARFAESI does not apply.
Can I go to jail for not paying a personal loan?
Non-payment of a loan is a civil matter. A criminal complaint is possible only in specific cases such as a bounced cheque under Section 138 or proven fraud.
Is settlement possible after NPA?
Yes. Many settlements happen after an account becomes an NPA. Always get the terms in writing before you pay.
Estimate what a settlement could look like with our loan settlement calculator.
Talk to Loan Counsel
Is your loan already an NPA or close to it? Our team can review your loans and explain your options in plain language.
This article is general information about Indian lending rules, not legal advice for your specific case.
About the author
Written by the Loan Counsel team. Loan Counsel is a Bengaluru-based loan settlement and debt advisory firm, founded in 2025 by Mohammad Faizan, Rahil Saqlain Ali and Khasim Khan. We help borrowers across India settle personal and business loans and credit card dues legally, and deal with recovery harassment. Meet the team.
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