When you fail to repay the loan |
Posted: December 22, 2016 |
Banks and other financial institutions offer loan products for almost any kind of need. For instance, if you want to purchase a house then you can take out a home loan, if you want to buy a car then you can take out a car loan or if you want to study abroad you can take out an education loan. Financial institutions are offering a range of loan products to meet the rising credit demand of consumers. When a loan is extended to a client, the client is expected to repay back the sum in equal monthly instalments along with the interest. The tenure of the loan and the interest rate will range depending on the type of loan, but all customers are expected to make the repayments on time.
Failing to repay back the loan can have serious consequences. Late payments and defaults get listed in your CIBIL report and damage your credit score. A CIBIL report contains information about your credit history, and lenders look at it to determine your creditworthiness. So when such negative items get listed in your CIBIL report, it brings down your creditworthiness and lenders will consider your profile risky. If you wish to avail credit in the future then a poor score and an unimpressive CIBIL report will limit your options. Also, the terms and conditions offered by the bank are likely to be stringent and they could charge exorbitant interest rates. When your score takes a dip on account of the late payments or defaults then it will take awhile to increase credit score.
You can land yourself in the loan defaulter list when you fail to repay back the borrowed sum. Even if you are struggling to make the repayments on time, your priority must be to never fall into the loan defaulter list. Now a bank can place you in the loan defaulter list depending on the grade that they have assigned you. The grade will be based on their policies as well as the cause for which you have failed to repay. If you have no reason to state for failing to make the repayments then you will find your name in the loan defaulter list very soon. On the other hand, if you are able to give a good reason as to why you were unable to make repayments and show your commitment to ensuring that repayments will be made then the bank may give you a leeway and not immediately mark you in the loan defaulter list. Being marked in a bank’s loan defaulter list tarnishes your image in the eyes of the lenders and they will be apprehensive about getting into any agreement with you. So instead of risking falling into the loan defaulter list, try to always make repayments on time. This will also help you increase credit score.
Banks and other financial institutions will let you avail both secured and unsecured loans. A secured loan is one where an asset of yours will be pledged as collateral for the loan. For example - home loan or car loan. Here if you are unable to repay the loan then the bank has every right to seize you asset. However before doing this the bank will send you reminders about late payments. An unsecured loan is a loan where you do not pledge any property as collateral, and an example of this is personal loan. While in this case, a bank cannot seize your asset they can however take different measures to ensure that you repay such as allocating the repayment task to the collection agencies, filing a lawsuit etc. Another point to be noted is that when you want to avail an unsecured loan, your score and CIBIL report plays a huge role. If you have any defaults in the CIBIL report then you are most likely to get your applications turned down for unsecured loans.
One of the ways to increase credit score is by making repayments on time. Ensuring that EMIs are paid on time will help you increase credit score. Having a healthy CIBIL report is important in this day and age where most of the purchases are done by credit. Also there are other parties besides lenders that are interested in your credit profile, so it becomes important that you practice every measure to increase credit score. When your lender sees that you are putting in the effort to increase credit score by paying EMIs on time they can relax the terms and conditions of the loan and lower the interest rate. In this way you can save more money. In conclusion, you risk facing serious consequences when you fail to repay the loan. Give priority to building a healthy CIBIL report and put every effort to increase cibil score as these will play a big part in your financial journey.
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