Individuals in need of finances are increasingly resorting to personal loans made available by financial organisations in reasonable instalments. This is a simple method to obtain funds while also teaching you the financial discipline required to repay loans. In addition, paying off your loans on schedule improves your credit score, allowing you to apply for larger loans. It also prevents you from diving into your savings every time there is an emergency.
All goes well as long as you repay your loans on time. But what if there is an emergency like job loss or medical issues. Such scenarios are not uncommon and can happen to anyone, placing you in a financial bind. So, have you considered your options in the event of loan default?
Continue reading to learn three strategies for dealing with a challenging financial scenario.
Tips to Avoid Personal Loan EMI Default
An EMI default on a personal loan will drop your credit score and harm your credibility. As a result, it is better to pay your EMIs on time and without fail. The following are some pointers to help you prevent personal loan EMI default.
- Restructure Your Loan
Personal loan interest rates are high, and if you cannot pay your set high EMIs due to financial difficulties, you must call the bank and request a loan restructuring. The loan rescheduling suggests that your lender may grant you an extended loan term. This helps reduce your EMI amount, allowing you to pay it on time. This rearrangement is beneficial in lowering the loan burden and preventing default. However, before deciding on such a restructuring, utilise a loan calculator to figure out how much you can afford to pay each month.
Furthermore, it is crucial to remember that extending the loan term may result in higher interest payments.
- Offer a Collateral
If you have exhausted all your options to repay the loan, you can put your asset as collateral with the lender. The personal loans are unsecured, but if you face financial difficulty in paying higher EMI, pledging security will help. This also gives confidence to the lender about your intentions to repay the loan.
By offering your asset as collateral for the loan, you will be able to negotiate lower interest rates. First, however, it is critical to use a personal loan EMI calculator to calculate the monthly payment.
- Opt for Loan Deferment.
You can request a loan deferment from your lender. A loan delay allows you to stop making principal payments on your loan briefly. Depending on the lender’s judgment, the period spans from three to six months. However, you must pay the EMIs in full after the specified period.
Personal loans are an excellent option to obtain finances in an emergency. However, financial discipline is required to prevent falling into a debt trap. A loan default frequently occurs when borrowers choose a more significant loan amount for which the personal loans interest rates are levied. As a result, it is critical to stick to your budget when applying for loans.
