Becoming a victim of circumstances or willfully being a loan defaulter whether of large sums or for a small amount, is not good for your credit reputation. Often loan defaults occur when you take on too many debts simultaneously and then find it difficult to manage!
Moreover, currently the savings is getting squeezed due to ever rising inflation. Incomes are not growing in proportion to the price rise, and interest rates are moving upwards rather than going down. This has resulted in rising NPAs and people are defaulting on their borrowings.
Contingencies can occur in a life cycle of loan and there may be times when you could fail to pay your EMIs. It could be a home loan, educational loan, or a car loan. However, skipping of debt one time and nonpayment of EMI on a regular basis have different connotations all together. Now, before understanding the procedures that can save you from loan defaults, one must understand the term “loan default”.
Loan default can occur when a person fails to meet the repayment obligations. The problem occurs when the default period extends and the bank or financial institution (FIs) has to take possession of the belonging. If the default is for one or two payments, penalty is charged on the amount due and then the loan is resumed.
The principles of loan:
It is right that the situations changes dramatically, but always take a loan on the basis of your existing capacity and future outlook. It is important to remember that future is uncertain and there may be a circumstance when the rate of interest may rise but your already stretched position in a borrowing will not allow you to keep pace with the payments. Therefore, it is advised to take the loan on the basis of ease of payment.
Savings rate is adversely impacted by the repayment of loan, but try and save on regular basis. Budget your expenses and deposit whatever you save in a separate bank account. Don’t withdraw money from that account unless extremely pressing situation occurs. This will help in taking care of the loan default. If you have lump sum of money pre pay your liability and ask the bank to restructure the monthly payments.
Talk to your lender:
Lender sets the term of the loan and can be a bit flexible in your favor if you have defaulted or on the verge of