What is Loan Repayment and Why is this ImportantTaking a loan is not a matter of choice, it is a necessity that people in need of financial help are enforced to take. Applying for a loan is easy but what makes it stressful is the repayment of loan loaded with interest. There are borrowers who smartly manage their loans and repay as pledged but there are also defaulters who abscond when it comes to loan repayment.
Loan repayment is a critical step that borrowers should not ignore when the EMI date arrives. Acquire loans only if repaymentis possible, otherwise defaulters spoil their own credit history and financial background that causes hurdles in acquiring future loans.
What is Loan Repayment?
Loan repayment is the actof paying off the borrowed money to the lender through periodic tenure, which involves both principal and interest amount through equated monthly instalment. Loan repayment is a very essential aspect for a good credit score. Depending on the lender’s terms and conditions an early loan repayment may sometimes lead to penalty charges. The penalty may be based on a percentage of your outstanding balance. Therefore, making timely loan repayment is an important factor for evading extra charges or fees.
Types of Loan Repayment Methods
Loan repayment can be made in various ways whichever is convenient to you. Let’s have a glance at few loan repayment methods:
- Debt consolidation - An ideal option to repay numerous debts combined in one loan amount.
- Use investment to repay loan - As per your financial status, you can use investments to repay loans. You can borrow against your Life insurance policy or from provident fund to repay loan.
- Convert credit card dues to EMIs - On spending lavishly, if your credit card bills have piled up, demanding a repayment. The best idea is to request your credit card company to convert your dues into EMIs.
- Change your lifestyle - It is often seen that small changes in your lifestyle may help in going a long way while also maintaining the finances. Curb on extra vagant expenses every month and repayment savings will automatically fall in place.
- Automated loan repayment - Shortage of funds is not the only reason for non-repayment of personal loan. There are borrowers who are so occupied that they miss the due dates of loan repayment. Hence for busy bees like these, automated loan repayment setting is ideal. The EMI will instantly get deducted on a set date.
Why is Loan Repayment Important?
Loan repayment should be taken seriously because it not only reduces your loan obligation and interest accrued, but loans also reflect your credit history. Timely loan repayments will influence the lender and increase trust towards you. The loan will be approved immediately as your credit history will have an impressive impact on the lender.
A positive credit history indicates the ability to handle finances and credit issues with great ease. Failure to maintain your debts and loans reflects a bad credit score through the credit report, creating difficulties in future loan approvals. Therefore, always keep a check on loan repayment to be cleared on time to prevent charges and penalties.