A lot of individuals take loans at various junctures to meet their different financial requirements. However, when they are faced with a financial crunch during this time, there could be outstanding payments towards these loans. It is important to understand that skipping EMI payments on existing loans and raking up credit card debt will add to financial obligations, multiplying it exponentially. When interest on various debts starts mounting into an overwhelming figure, it’s time to opt for a personal loan for debt consolidation.
The Burden of Overdue Payments
An individual can begin taking action before he is officially late on any payments. He may still have several options to lighten or get rid of the burden of overdue payments, including:
Pay late: It’s best to make loan payments on time, but if one can’t do that, slightly late is better than really late. Making a payment within 30 days of the due date is an ideal choice. In many cases, those late payments are not even reported to credit bureaus, so the credit will not be damaged. This leaves an individual the option of consolidating or refinancing debt.
Consolidate or refinance: Consolidating with a personal loan results in lower interest costs and a lower required payment. Plus, a new loan typically gives a borrower more time to repay. For example, a borrower might get a personal loan that he repays over three to five years. Taking longer to repay might end up costing him more in interest—but it might not. Especially when getting out of payday loans, a borrower could easily come out ahead. Apply before one mises on payments to qualify for a new loan. Lenders don’t want to approve somebody who’s already behind. Where should one borrow? Borrowers can start by applying for unsecured loans with banks and credit unions that work in their community, and online lenders.
Personal loans: Consolidating with a personal loan can help get an approved loan. If a borrower puts his house on the line as collateral, he could lose it in foreclosure, making things difficult for him and his family. Having a personal vehicle repossessed may make it hard to get to work and earn income.
Communicate with lenders: If a borrower foresees trouble making payments, it is best to talk with the lender. They might have options to help the borrower, whether it’s changing the due date or letting the borrower skip payments for several months. One might even be able to negotiate a settlement. Explain that one can’t make the payments, offer less than one owes, and see if they accept. This isn’t likely to succeed unless one can convince the lender that he or she is unable to pay, but it’s an option. The borrower’s credit will suffer if he settles, but at least he puts the payments behind him.
Prioritize Payments: One might need to make difficult decisions about which loans to stop paying and which ones to keep current on. Conventional wisdom says to keep making payments on home and auto loans, and to stop paying unsecured loans (like personal loans and credit cards) if a need arises. The rationale is that one really does not want to get evicted or have a vehicle repossessed. Damage to the credit is also problematic, but it does not instantly disrupt one’s life in the same way. Make a list of the payments, and make a conscious choice about each one. Make safety and health a priority to ensure appropriate prioritization of payments.
Additional Reading: Personal Loan EMI Calculator
What is a Personal Loan?
Personal loans give borrowers access to funds to use at their discretion and are mostly unsecured, meaning they don’t require borrowers to put down collateral to obtain the loan. This differs from auto loans, where borrowers need to provide collateral — for example, their home or vehicle — that the lender can repossess if the borrower does not make payments.
Using Personal Loan to Clear Overdue Payments
Personal loans are an easy way for a borrower to consolidate overdue payments. While personal loans may have higher interest rates than secured loans, they often offer lower interest rates than credit cards, for example. However, borrowers can only qualify for lower rates if they have excellent credit.
A personal loan may be an enticing option for clearing overdue payments, as it could allow borrowers to pay off their high-interest credit card debt and then pay off the personal loan at a lower rate. Personal loans are a viable option if borrowers have large amounts of overdue payments. Using a personal loan to pay off credit card debt could help in saving money on interest and potentially get out of debt faster.
Benefits of Personal Loan
No limitation on end-use: – Unlike a home loan, a personal loan can be used for any purpose. There are no limitations on the end-use of the personal loan. One may have an urgent requirement of funds and a personal loan can be one of the easiest ways to get cash.
Quick disbursal: – If an individual meets the eligibility criteria and has a good credit score, he can get a personal loan in 72 hours time. In fact, some of the banks provide the facility of online approval of personal loans for existing customers.
No collateral required: – One does not have to arrange for any collateral. It is an unsecured loan. Therefore, it is easy to get.
Flexibility to choose the tenure: – The tenure of the loan goes up to 7 years therefore one can have the flexibility to choose a tenure which suits best. Longer tenure means lower EMI and vice versa. Therefore, one can decide the tenure after calculating the EMI.
Fixed-rate of interest: – Personal loan is generally available on a fixed rate of interest. So, the equated monthly instalments will remain fixed for the entire loan tenure. Therefore, one does not have to worry about the interest rate changes.
Tax benefit: – If one uses the personal loan for the construction, renovation of a house or making down payment for the house, one can avail the tax deduction of up to Rs 2 lakh under Section 24B for the interest component in a financial year. He or she will have to provide enough documents to prove that the money has been utilized for that purpose only.
1.What is the eligibility to get a personal loan?
Banks give a personal loan to an individual, self-employed professionals and non-professionals, Different banks have different criteria for giving personal loan. Following are the most commonly used criteria by banks for individuals:
Minimum age: – 21 years
Maximum age: – 60 years
Minimum monthly income: – Rs. 15,000 (banks may have a higher minimum income requirement)
Total years of job: – at least 2 years
Year of current residence: – 1 year
2.How much loan amount can I get under a personal loan?
Depending on the source of your personal loan, you can use the EMI calculator to gauge the amount of loan you can apply for.
Additional Reading: Personal Loan Interest rates
A personal loan is one of the easiest ways to clear overdue payments and ensure that the credit score is not affected. Personal loans are easy to get and can help in consolidating one’s finances. It is a safer option to clear overdue payments instead of avoiding a personal loan when the need arises.