[ecis2016.org] If you are applying for a personal loan, it is important to understand overdue payments and how a personal loan can be used to clear overdue payments.
It is critical to recognise that failing to make EMI payments on existing loans and accruing credit card debt can increase financial liabilities exponentially. When the interest on numerous bills becomes too much to bear, it is time to consider a personal loan for debt consolidation.
You are reading: Using a personal loan to clear overdue payments: All you need to know
Effects of payments overdue
Declared as a defaulter
You are called a defaulter if you do not pay your loan EMIs on time. Some loan providers include a ‘grace period’ that begins immediately after your EMI due date. If you do not pay your loan during the grace period, you may be compelled to pay a ‘late payment’ fee to avoid being labelled as a ‘defaulter’. The length of this grace period and the costs charged differ.
Late fees and additional charges
If you make an EMI payment after the due date but within your lender’s grace period, you will normally be charged a ‘late fee’ in addition to your EMI amount. If the grace period expires, your lender will charge you as a defaulter and charge you additional fees on the unpaid amount.
Credit report and credit score
If you are behind on your EMI payments, you may see a little or significant decline in your credit score. The issue comes when a person’s credit score is so low that it precludes them from being approved for a personal loan. As a result, they will find it harder to secure loans in the future.
Assets lost as collateral
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When you apply for a personal loan, you almost always do not need to provide collateral because you have chosen an ‘unsecured’ loan. Loan providers may occasionally request the name of a ‘guarantor,’ whose contact serves as collateral. Defaulting on your EMIs will very certainly place your guarantor in hot water. When you default on a ‘secured’ loan, you forfeit the security you pledged against it.
Personal loans provide borrowers with funds to use at their discretion and are typically unprotected, which means that borrowers are not required to put down security to acquire the loan. This varies from auto loans, in which borrowers must supply collateral—such as their home or vehicle—that the lender can seize if payments are not made.
Benefits of using a personal loan to clear overdue payments
Personal loans are a convenient solution for borrowers to consolidate past-due payments. Personal loans may have higher interest rates than secured loans, but they frequently have lower interest rates than credit cards. Borrowers can only qualify for cheaper rates if they have excellent credit.
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A personal loan can be an alternative for making up missed payments because it allows debtors to pay off their high-interest credit card debt first and then pay off the personal loan at a lower interest rate. If consumers have a considerable number of past-due payments, personal loans are a possible choice. Taking out a personal loan to pay off credit card debt could save you money on interest and help you get out of debt quickly.
Advantages of a personal loan
- If a person meets the qualifying requirements and has a strong credit score, he can acquire a personal loan in as little as 72 hours. In reality, some banks provide existing customers the option of applying for personal loans online.
- A personal loan, unlike a home loan, can be used for any purpose. The personal loan has no restrictions on how it might be used. If you need money right away, a personal loan is one of the most convenient ways to receive cash.
- There is no need to secure any collateral. It is a no-credit-check loan. Therefore, it is easy to get.
- Personal loans are often offered at a set rate of interest. As a result, the equivalent monthly instalments will remain constant throughout the loan term. As a result, there is no need to be concerned about interest rate fluctuations.
- Personal loans are frequently offered at a fixed interest rate. As a result, the monthly payments will remain consistent throughout the loan term. As a result, you won’t have to worry about interest rate swings.
- Individuals, self-employed professionals, and non-professionals can get a personal loan from a bank. Personal loans are granted according to different criteria by different institutions. The following are the most typical criteria used by banks when evaluating individuals:
Eligibility criteria for personal loans
- 21 years old is the minimum age requirement.
- 60 years old is the maximum age limit.
- Rs 15,000 as a minimum monthly income (banks may have a higher minimum income requirement).
- At least 2 years of work experience.
- Year of current residence: 1 year
Personal loans are simple to obtain and might aid in financial consolidation. Clearing past-due payments rather than avoiding a personal loan when the need arises is a safer option.
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