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In recent years there has been a surge in the number of individuals opting for personal loans to finance their travel, shopping, and other urgent financial needs. Personal loans are unsecured loans that can be availed with minimal documentation and are disbursed fairly quickly. These come with a flexible repayment schedule that ranges between 1 year and 5 years. Banks and other lending agencies provide their customers with the option of choosing the loan tenure that is most convenient for them. These are some of the primary reasons why most people prefer personal loans over other types.
Despite selecting a repayment tenure and EMI options that are comfortable, there are certain instances where the borrower could have trouble repaying the EMI for a particular month or time period. Missing on 1 or 2 EMI payments might not look like a big deal but it does have certain negative impacts.
A lot of banks and financial institutions categorize loan repayment defaults into the following 2 categories:
Here are some of the consequences of missing out on personal loan EMI payments.
Defaulting on loans is best avoided and there are a few ways to deal with it. In most cases, borrowers tend to have prior knowledge of whether or not they would be able to make the upcoming EMI payments. Here are some of the options that the borrower can employ to ensure that he avoids loan defaults.
Financial Planning - In order to avoid the chances of defaulting on a loan, it is advisable that borrowers plan their finances more efficiently and well in advance.
Choose a Lower EMI - If the borrower senses the possibility of defaulting on a loan payment, he should approach the bank and inform them of his financial circumstances and request a lower EMI. Banks can lower EMIs by either extending the existing loan tenure or converting an unsecured loan to a secured loan. When the loan is converted to a secured loan, the interest payable on the amount borrowed is also lower. Of the 2 options, converting an unsecured loan to a secured loan is ideal since the reduction in EMIs is significant when compared to extending loan tenures. Very few banks permit extension of loan tenures.
Part Payments – Making part payments is yet another way to lower the EMI payments and the interest rate. This method helps in ensuring that the borrower is capable of making EMI payments for the entire loan tenure. When the borrower has surplus funds and an active personal loan, making a part payment can ease the financial burden.
Request for an EMI-free period - The borrower can approach the bank and request for an EMI-free period in case he faces a crunch in the inflow of finances. Banks often agree to such requests made by customers, especially if they have lost their job or are temporarily facing issues with business operations. The bank gives customers a 3 to 6-month waiver on EMI payments, following which the borrower must resume EMI payments.
A low credit score should be considered as a lesson for better handling of future repayments. There are certain tips or methods that can be followed so as to improve one’s credit score. Some of them are listed as follows:
Missing out on EMI payments on a personal loan is not uncommon but it could have some negative impact on one’s credit standing and credit-seeking capacity. It is best to learn more about managing finances and the situations that could lead to non-adherence of loan repayment.
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