Follow these 5 tips to avoid the loan defaulter tag |
Posted: March 21, 2017 |
Any borrowing be it a loan or a credit card transaction is done with an underlying assumption that the borrower has to repay it as per the agreed terms that includes the stipulated time. The failure to do so can put you in the loan defaulter list. In this digitally connected world that sure is not a good sign; any default on a payment puts you on the radar of all lenders as information about all loans of an individual is collated by rating agencies and is shared with lenders when required by them. Being on a defaulters list is not a good thing as it hampers any further chances of getting credit by an individual. How to Avoid Being a Loan Defaulter: Obviously the best way to avoid being tagged as a defaulter is to pay all your dues and EMIs on time. However there might be times when you are unable to do so due to some unforeseen and unavoidable circumstances. In such a situation it is better to be pre-emptive and take requisite action rather than wait for the inevitable and miss a payment. Here are a few ways in which you can avoid being a defaulter, it is better to be careful at the time of borrowing and even after a loan has been sanctioned.
While we all have dreams and aspirations, it is better to be realistic when borrowing. Always be careful about how much you should borrow keeping in mind your income, existing debt, future earning potential and also future responsibilities. While a lender may look at all these aspects before sanctioning a loan, it is better to be self aware and exercise caution. Your EMI outflow should ideally not be more than 50% of the monthly income. One should use a loan EMI calculator before applying for a loan so that they are able to understand whether they can service the new loan or not. Not being over leveraged is the first step to avoid being a defaulter.
When you apply for a loan one is required to make a down payment except in the case of a personal loan. While it may seem to be a good idea to dip into your savings and make a larger down payment to reduce your loan burden and loan cost; remember it may not be the best solution. A bigger down payment will definitely reduce the EMI burden but using all your savings for making a down payment is not a prudent decision in the long term. Apart from using the savings for the down payment one may tempted at other occasions to use their contingency funds but this is highly unavoidable. Contingency funds are for contingency and if you have used yours for some reason make sure to replenish it before you borrow afresh. In case of some problem you can use this fund to pay your EMIs and can avoid defaulting.
If while taking a loan you have considered your income to expense ratio then it is unlikely that you would face a problem repaying your dues as long as you continues to have your existing job. Except in the case of willful default or an unfortunate event it is usually job loss that is the root cause of a loan default. Thus before taking a loan evaluate your employment status; how long have you been working in your current organization, is your probation over, is your company business model stable, do you foresee any job cuts in future. While it is difficult to predict what will happen in the future but borrowing after you feel settled in the job and the company makes more sense. For self employed also it is important to assess their business potential before taking a loan.
In case the borrower finds it difficult to pay the entire EMI due to decrease in income (this could be due to one partner losing a job, recession, and cost cutting and so on). The borrower can in such a scenario request the lender to reduce the EMI and increase the loan tenure. This cannot be done on your own and the borrower will have to talk to the lender for this; the; lender might be willing to this if the borrower has been regular in repaying his EMIs in the past and has a good credit record.
This works especially in case of home loans. Buy a home insurance policy or a term insurance for the right amount and right tenure. In case of the demise of the borrower or job loss or disability (depending on the type of policy) the dependants or the borrower himself will be saved from defaulting on the loan as the insurance policy will take care of situation. Do borrow when you require but plan ahead and keep assessing your situation so that you do not default on your loan.
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