What is the first thing that one does when the going on financial front gets tough? At Credit Sudhaar, our interaction with innumerable customers since inception who are spread in about 300 cities across the geography of the country reveals that suspending the payment to the lenders, or simply put, stopping to pay the EMIs on loans or outstanding balance on credit card is the first thing that one does.
While this may be essential at that point in time from the personal perspective, but is it the right thing to be done? Or are there any options that may help one to deal with the situation more effectively? Read on to know the possible solutions to this and how to avoid one’s name to become part of the loan defaulter list.
Let us first understand that repayment of loan obligations is must. Current inability to pay regular EMIs does not mean that one can take the lending institutions for granted and can just stop paying completely. This is as much one’s responsibility as would be towards one’s family. Running away from the responsibilities will only complicate the situation and not east it out.
Not paying these can have a long lasting impact on one’s credit profile and has potential to have permanent impairment of the CIBIL score. Here is what one could do in general and specifically on the four most popular loan types; in case one goes through a financial crunch.
Inform the lender about the difficulties upfront. Do call up the center or even better, walk into the branch and try to understand the options that they have to help you bail out of the situation. Please understand that the lenders are interested in getting their money back and if they find your issues to be genuine; they might extend support.
Never avoid calls from lenders or collectors. This can lead to even more rigorous follow ups from them and as the bucket grows, the intensity of calls also grows. These calls can add to stress to a great extent.
Let us look at the product specific approach one may follow to be in a better situation than getting updated in the loan defaulter list.
This is the most used credit product. And generally, this is the one that leads one to exposing himself to high credit amounts. Especially when one is going through a downturn, the expenses on credit cards get close to limit. In some cases, the outstanding goes past even beyond the limit.
The first thing one should do is to just lock away the card and stop using it completely. As a next step one should try to keep paying the minimum amount due which is only 5% of the total outstanding. If even paying off 5% is hard, it is advisable to contact the issuing bank and requesting them to convert the outstanding into a loan with a fixed EMI. This will lead to saving on the interest outflow and even will help in reducing the monthly obligation. If you calculate, the EMI will turn out to be lower than paying the minimum amount due, at least in initial year.
Here the approach has to be to get the loan extended to the maximum possible term. In case you had availed a term of say of 36 months and have paid 12 EMIs, you can ask them to increase the term to 60 months. While most of the banks may not agree to this initially, but given the logical reasoning and approaching their seniors will help. Do not hesitate in writing to the bank and documenting your difficulties and intention to pay. Some lender may evaluate closing your existing loan and adding the pre-closure charges to the new loan that gets booked for a longer term. You can even offer them to charge a slightly higher rate of interest if the term is extended as per your request.
This comparatively can be easier than personal loan. Rather than defaulting on this category of loan, which can have far more severe impact on the CIBIL score, one can have the housing finance company extend the term depending upon the eligibility as may not be the case in a personal loan.
The best strategy if one is unable to pay up the EMIs is to ask for some time from the lender and sell the vehicle off. Since the vehicle is hypothecated, keeping the lender informed is must. The value of loan in most of the cases will be lower than the value received from selling the vehicle unless it is a new loan. The money over and above the loan amount can be utilized to pay off some other debts.
One needs to be very clear of the fact that even if one stops to pay the lending institutions, they will have to do it sooner or later. The deferment of repayment is not only going to have the spiraling impact on the due amount but will also have negative impact on the credit score. This can even lead to unavailability of loans and credit in future. So better, one should negotiate on the options with the lender.