A personal loan has become one of the most sought-after financial instruments for your emergencies. As easy as the approval process for a personal loan is, it sometimes becomes difficult to repay it. You may have the whole repayment planned but there can be just one event that may spoil your plan. So, to avoid such repayment issues and earning the title of a personal loan defaulter here are some tips that will come in extremely handy in such situations.
What happens if you are unable to make a personal loan payment?
It is important to check all the personal loan details before you apply. However easy and simple things are, there can be some major consequences for defaulting on a personal loan:
- Your credit score is affected: A single loan default can lower your CIBIL score drastically. A lower credit score can make it hard for you to get any credits or loans in the future.
- Financial Burden grows: Not making the personal loan payment can cause you late fees, legal costs, penalties, etc. All these costs can add up to the loan balance making the total much higher than your loan amount.
- Legal Action: To recover your loan amount the financial institution can also resort to legal actions.
- Your co-signer is impacted: If you are unable to repay the loan, your guarantor may also receive calls for the loan payment.
4 things to do if you are not able to make a personal Loan Payments
If you want to avoid all the above consequences these are some tips that will help you.
- Calm Yourself: Before you apply for any personal loan, it is important to know the loan amount, the interest rate. You can use a personal loan interest rate calculator to know the EMI that you will have to pay.
- Consider alternate options: You can look for alternate options to pay your personal loan:
- a) Refinance Your loan: You can check your present loan details, and look for refinancing options with lower interest rates and more grace periods. You can also look to borrow some money from your friends and family to cover your short-term finances.
- b) Grace Period: If you think you are going through a rough time right now and may be able to repay your loan later, you can talk to the Financial Institution asking for some grace period, giving you a window of opportunity to calmly seek ways to increase your cash flows.
- c) Lump-Sum Settlements: For personal loan you have the option to opt for one time or lump sum settlements of outstanding dues. This will help waive some of the charges or some of the amount and charges, and you can pay the rest as a loan settlement.
- Liquidate your investments: If you are not sure of how to refinance, you can also look to liquidate your assets to service your debt. Based on your deposits or mutual funds, you can decide on which ones you want to liquidate. You can also use this amount to make part payments of your principal amount.
- Prioritize your payments: If you have multiple payments of loans that you are repaying for, you might have to make difficult decisions to prioritize your payments. This will help you in planning your finances and making sure you do not land yourself in trouble.
One of the main tenets of financial planning is safety, and thus it is important to have a contingency fund. The best solution to avoid any delay in repaying a personal loan is to not get into this situation in the first place. But once you are in it, do not panic. Just stay calm and find your best option from the many given above.