A personal Loan is one of the most common types of loans that are taken by both individuals and businesses. If you have taken one yourself, then the following are some of the important things that you need to know about its repayment:

Discipline Matters

You may already know this, but paying the EMIs on time is really important. And it’s not only about preventing penalties and fines. Late EMIs can also hurt your credit score and make it difficult for you to get a good Personal Loan interest rate in the future.

Many people think that one late payment or two can’t cause any harm to your credit rating. However, that’s just a misconception. In reality, even one late payment can bring your score down by a few dozen points. This is because it’s largely based on the Credit Rating Agency itself i.e. the credit score calculation formula used by them, and the lender’s handling of late payments. Most lenders wait for a few weeks when a payment is delayed before they inform the credit rating agency. However, you shouldn’t take any chances.

Loan Defaulting

One of the biggest mistakes that you can make in your life is to have your name put on a loan defaulter list. This is because when that happens, you lose all your credibility in the eyes of the lenders.

When you stop paying the EMIs of a loan, then your bank waits for a fixed period (1-3 months). If you don’t resume the payments in this period, then it sends you a reminder and then waits for some more time. If no payment is released in this period as well, then it may send you a legal notice, and if you don’t comply with the rules even then, then they can put your name on a loan defaulter list. This list comprises the names of blacklisted individuals to whom the bank would never offer a loan in the future.

Being a loan defaulter is worse than you think. This is because its instance is added to your credit report which means whenever a lender (current one or a new one) will check your loan application, they will get to know about your history and reject the application right away. So, no matter what happens, never default on a loan. If your financial situation is really bad, then instead of ignoring the reminders from your bank, you should contact them and request them for some additional time. Even if you are able to resume payments later, it’s fine. As long as you are not ending up defaulting, you are good.

Interest Rate

Many people don’t know this, but a personal loan interest rate can be of two kinds- fixed rate interest, and floating rate interest. It may be a small distinction, but it’s an important one. This is because a fixed rate remains the same through your loan’s term. However, a floating rate may change from time to time on the basis of the market conditions. So, if you are yet to get a personal loan, or if there is an option to change the nature of the interest rate before the term is completed, you can go for the switch based on your requirements.

Prepayment

If you are thinking of repaying your loan before the expected completion of the term, then you may be surprised to know about the prepayment conditions.

In a perfect world, clearing debt faster would be a good idea. However, in the real world, that’s not always the case. This is because when a borrower repays their loan faster, then the bank earns less interest. This is why some banks impose a fine for the prepayment of loans.

Hopefully, this information was of some help to you. Just make sure that you check your credit report from time to time for a safe repayment. Good luck!

The post All You Need to Know About Repaying a Personal Loan appeared first on Credit Sudhaar Blog.