5 Ways of Managing a Personal Loan Default
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5 Ways of Managing a Personal Loan Default

  • Highlights

  • Talk to your lender at the earliest

  • See if you can restructure your loan

  • Find out about deferring payment option

  • Explore EMI holiday and offer a collateral

Defaulting on a personal loan, or any loan for that matter, doesn’t augur well for your financial health. Not only it impacts your credit score negatively, but also reduces your creditworthiness. However, situations such as a medical emergency, job loss, an accident leading to a sabbatical for a few months, etc., can put you in a tight spot leading to a default. Read on to know the 5 effective ways of managing such a situation.

Inform your lender at the earliest

Once you know your situation will lead to a default, it’s imperative to inform your lender at the earliest. It’s essential to convey the circumstances to your lender, who might take a lenient view and give you some breathing space when informed beforehand.

However, timing is important as any delay would raise a red flag and question your intention on repayment.

Restructure your loan

Restructuring the loan involves tweaking the EMI amount and the tenor. If you find it difficult to pay the existing EMI amount, approach your lender and place a request to increase the loan tenor.

A longer tenor reduces the EMI amount. Restructuring your loan would help manage your EMIs without default and impinging on other essential financial goals.

Flexi Loan Explained

Explore deferring payment option

Offering temporary relief, a deferring payment option from your lender holds off the payment for some time. During this period, you aren’t charged any interest. However, note that once this time is over, you need to pay the EMIs as per the original schedule.

Hence, it’s essential to arrange for the requisite funds during this grace period to ensure you don’t default later.

Find out about EMI holiday

EMI holiday is a new concept in the lending landscape. It shares some similarity with the deferring payment option, whereby your lender allows EMI exemption for a few months. This duration can range from 3-6 months, depending on your lender’s discretion.

However, note that even if your lender has this option, there are several parameters, such as your credit score, past repayment history, etc., that are taken into account before you can exercise it.

Offer a collateral

A personal loan is an unsecured mode of finance where you don’t need to pledge any asset as collateral. However, when facing imminent default, you can offer a collateral to your lender against the loan taken. A collateral will act as back up and your lender might reduce the penalty charged on loan default.

A default will not only hit your credit score hard but can also lead to legal hassles. This will further dent your finances and balloon the situation beyond control. Most borrowers default because of a high loan amount which effectively pushes up the EMIs. Biting off more than what you can chew can spell trouble in the long run.

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