All You Need To Know About Loan Repayment And Why Is It Important
Loan Repayment
The personal loan outstanding in India appreciated by more than 12% between September 2020 and September 2021. This was not only indicative of increased borrowing but also poorer repayment.
- The figure was around Rs.26 lakh crore in 2020, exceeding Rs.29 lakh crore by September 2021.
- In that same period, outstanding overall credit increased by just 6.7%.
To avoid delinquencies in loan repayment, proper planning is crucial. The following piece informs potential borrowers about the repayment process in detail.
Factors to consider while planning loan repayment
Personal loans are unsecured and generally come with comparatively higher interest rates.
This is why it is crucial to keep associated factors in mind to avoid unnecessary complications related to your EMI repayment.
Here are some aspects you should pay heed to while planning your personal loan repayment.
- Choosing the loan tenor smartly
As mentioned earlier, the interest rate for such credit advances remains slightly higher. Individuals need to choose the loan tenor wisely to keep the equated monthly installment amount affordable.
Even though a longer repayment tenor reduces the monthly installment amount, the overall interest outgoes increases.
Whether a big ticket or a small personal loan, choosing the most suitable tenor ensures a comfortable and hassle-free repayment.
- Selecting the right lender
Apart from loan terms and interest rates, borrowers should also pay heed to aspects like processing charges, additional fees, etc.
Comparing various lenders is crucial to get the best personal loan rate and lowest associated charges. Make sure to check the part-payment and loan refinancing costs as well.
Many lenders levy penalty fees when borrowers decide to part-pay or shift the loan before the tenor ends.
- Keep track of deadlines
There is a particular due date set by financial institutions on which individuals are supposed to make their EMI payments.
Missing these deadlines inevitably leads to a poor credit rating and impacts the loan repayment process. One also needs to bear unnecessary penalty charges.
To avoid all that, it is advisable to set monthly reminders in the calendar or email and pay the personal loan dues on time.
Note that reputed lending institutions also provide pre-approved offers to such responsible borrowers.
These offers are available on multiple credit facilities, including home loans, loans against property, etc.
To use attractive deals extended by financiers, you can check your pre-approved offer by submitting your name and contact details.
- Improve your income
One of the key reasons why lenders check applicants’ income details is to avoid the risk of loan default.
A low income affects your personal loan approval and makes it challenging to bear the monthly financial liabilities after a point. It is ideal to have a monthly income of Rs. 22,000 to get a personal loan for salaried employees.
In contrast, self-employed individuals should have Rs. 5 lakh annual gross receipts for qualifying. But this limit changes based on the applicants’ city of residence.
Apart from that, individuals should also have substantial funds in their savings accounts to pay their EMIs in an emergency. Another alternative way is to invest those funds properly so that it can help them earn more return and interest.
In the case of certain investments, funds keep increasing over time, and one can use the excess money to repay the loan.
- Plan repayments in advance
After choosing a specific lender, you will know the applicable personal loan rates. It allows borrowers to prepare their repayment strategy before submitting their loan applications.
One can also use the online loan EMI calculator to assess the monthly obligations and borrow accordingly.
However, even after having a solid loan repayment plan, one can fall into a debt trap due to sudden financial emergencies or unforeseen expenses.
This is why managing a personal loan default and debts is essential.
- Ask for interest rate readjustment
In case you notice that it is becoming way too challenging to bear the EMI burden after a point, ask your financier to restructure your loan.
For example, a person can contact their existing financier to discuss loan interest rate, EMI, or tenor adjustment. Financial institutions often agree based on the borrower’s repayment track record.
After that, you can develop a new repayment strategy and manage your finances better.
Note that having a compact loan repayment plan is insufficient to manage the EMI liabilities conveniently. After getting into such financial commitments, keeping the monthly expenses in check is also essential.
This way, one can avoid loan defaults and missed EMI payments.
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Category: Loans
