Any kind of mistake you make while paying back your personal loan EMIs can have two effects. If you don’t pay your EMIs on time, the lender will charge you late fees, and your credit score will also go down. Also, not paying EMIs over and over again leads to the worst-case scenario of loan default. This even adversely impacts your credit profile, which is reflective when you do CIBIL score check.
Since a large number of people have trouble paying back their personal loan EMIs in the same way, it’s important to know what you can do to avoid going into default. Here are the best ways to handle EMIs; make sure you don’t default on your personal loan, which also harms your CIBIL score for personal loan:
Sell any fixed-income investments that aren’t going toward important financial goals.
When it’s hard for personal loan borrowers to pay their EMIs, one of the first and most important things they can do is find their fixed-income investments like recurring deposits, debt funds, or fixed deposits that aren’t set aside for important financial goals. Most of the time, the long-term returns on these fixed-income investments are lower than the long-term returns on other asset classes, especially stocks.
Also, the interest earned on these kinds of investments is usually much lower than the interest rate charged on personal loans and even the cheapest loan options available from lenders. So, selling your low-yielding fixed-income investments can help you out if you are having trouble paying your personal loan EMIs. This could assist you in avoiding harm to your CIBIL score for personal loan which could have been possible if you had ended up defaulting on your loan.
Ask your current personal loan lender to extend the length of the loan.
Reasons like a drop in monthly income or a rise in an existing loan’s EMI due to a rise in lending rates, like personal loan interest rates, can put a strain on a borrower’s finances and make it hard for them to pay their existing EMIs. In this case, the borrower can ask the lender to extend the loan term since a longer loan term would also lower the personal loan EMI amount. This could help the borrower pay the lower EMI amount and avoid defaulting on the loan, which in turn could have lowered your CIBIL score for a personal loan. Even though extending the loan term would mean paying more interest, borrowers can try to pay off the loan early whenever they have extra money to reduce the overall cost of interest.
However, as an extension of tenure sometimes is treated as restructuring of a loan, remember that this step can lower your credit score by some points, which would be visible when you go for CIBIL score check.
Use the money in your emergency fund to pay your EMI.
To deal with financial emergencies, it’s important to set up and keep up a good emergency fund of at least six times your monthly fixed and recurring expenses, such as loan EMIs, rent, SIPs, etc. This fund is important because you never know what will happen in life, like losing your job suddenly or getting sick. Any such unexpected financial emergency can make it hard for a borrower to pay back their debt, which can also cause them to stop paying their EMIs. If you had a good emergency fund, you could get out of any of these situations without harming your credit score, which you can yourself see through CIBIL score check.
If you can’t pay your loan EMIs because you need money for something else, you might want to use your emergency fund to pay off your personal loan EMIs instead. This will help you avoid late payment fees and possible damage to your credit score if you don’t pay on time or miss an EMI.
Change lender if it seems feasible.
For personal borrowers who are having trouble paying their EMIs on their current loan, switching to another lender via balance transfer is a smart way to lower their EMIs and avoid a downfall in CIBIL score for personal loan. Before choosing a lender, it’s a good idea to compare them on things like personal loan interest rates, loan terms, processing fees, and so on.
Then, choose the lender with the lowest interest rate and the best loan service terms. If you do this, your personal loan EMIs will go down, and you will be able to pay the lower EMIs. If you decide to go through with the balance transfer, keep in mind that the new lender is likely to see your request as a new loan application and may charge you fees like a processing fee. So, make sure that the total amount of interest you’ll save by transferring your balance is big and that the fees you’ll have to pay don’t cancel out the benefits of transferring your balance. Also, remember that when analyzing your balance transfer request, the lender will do CIBIL score check to assess your credit profile.
Choose to combine your loans.
Borrowers often have trouble paying back their personal loan EMIs, especially if they have more than one loan. During breaks in income or when money is tight, Even having to pay back multiple EMIs with different interest rates and due dates on time and regularly can sometimes be a burden on the borrower. These types of borrowers can choose to consolidate their debt, which means they would only have to pay one EMI at a lower personal loan interest rate instead of several at different rates.
For instance, people who already have a home loan can get a home loan top-up, whose interest rates are usually much lower than those of other loan types like personal loans. Borrowers can use the money from the top-up loan to pay off other loans early. This way, they only have to pay the EMIs for their home loan and top-up loan instead of the EMIs for several high-cost loans.
But people who don’t have a home loan but are having trouble paying back expensive loans like personal loans, business loans, etc., can look into secured credit options like loans against property or gold if they have the necessary asset. But before taking such a step, ensure to first do your CIBIL score check to ensure your credit profile is good enough for other lenders.
