Defaulting on any loan doesn't reflect well on your financial health. It impacts your credit score negatively and reduces your creditworthiness. However, situations such as a medical emergency, job loss, or an accident leading to a sabbatical for a few months can put you in a tight spot leading to a default. Read on to know the five 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 is essential to convey the circumstances to your lender, who might take a lenient view and give you some breathing space.
However, timing is important as any delay would raise a red flag and question your intentions regarding 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 request an increase in the loan tenor.
A longer tenor reduces the EMI amount. Restructuring your loan would help manage your loan EMIs without default and impinging on other essential financial goals.
Explore a deferring payment option
A deferring payment option from your lender holds off the payment for some time, offering temporary relief. During this period, you aren't charged any interest. However, note that you need to pay the EMIs as per the original schedule once this time is over.
It is, therefore, essential to arrange for funds during this grace period to ensure you don't default later.
Find out about EMI holidays
An EMI holiday is a new concept in the lending landscape. It shares some similarities with the deferring payment option, in which your lender allows an EMI exemption for a few months. This duration can range from three to six months, depending on your lender's discretion.
However, even if your lender offers this option, several parameters, such as your credit score, repayment history, etc., are taken into account before they extend it to you.
Offer a collateral
An instant personal loan is an unsecured mode of finance in which you don't need to pledge any asset as collateral. However, you can offer collateral to your lender against the loan when facing imminent default. Collateral will act as a backup, and your lender might reduce the penalty on 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 the situation could spiral out of 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.
Pre-approved offers from Bajaj Finserv on personal loans and other loans such as home loans and business loans simplify the application process. You can discover your pre-approved offer by sharing a few basic details.
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