Loans are the hope that everyone sees in order get their dream come true much before expected. May it be education, which they thought they could never afford, or a house which they thought could buy 15 years later, a car they thought they would buy 5 years later, a big wedding which seemed impossible, a perfect holiday which was dreamt for years could be managed to go to this year than 2 years later! And all this because the loans are available. Starting from a home loan, education loan, auto loan, business loan upto Personal loan. There are different loans for different purposes.
When talking about a personal loan, they can be tailor-made for a particular purpose. These are the unsecured type of loans where there is no asset allocation in exchange for the loan amount taken. A home or gold or car or property is not kept as collateral as security when a personal loan is taken and this makes it an unsecured loan. As this is unsecured loan they are also considered as risky profile! Many background checks are done before approving the loan. The first thing is checked if the applicant is in a personal loan for low cibil defaulters list. The low cibil score anyway implies two things. First that they have made defaults in past because of which the score is low. Making this a high-risk profile. Also, the second point is interrelated to it, as they have made defaults and the score is low, they are in need of cash and this can be a credit hungry behavior.
Now, let’s talk about why one may do default on the personal loan. As the name suggests obviously personal loan is taken for personal uses. Renovating a house or going on a holiday or getting married or some medical emergency or investment, anything could be a reason to apply for a personal loan. Obviously, the banks or the NBFCs (Non-Banking Financial Institutes) will not approve for the loan one won't be able to repay. Checking the income source, their liabilities, debt to burden ratio, all are calculated and then the loan amount is sanctioned. For example, an individual is earning 50,000 per month. So a loan that has no more than 20,000 Rs EMI per month is only approved even if the requirement of the borrower is more.
While checking all these criteria, one of the criteria that is to be done is cibil score calculation. CIBIL score or credit score is the representation of how responsible a person is repaying the credits borrowed and that gives an idea about abt will that be a risky profile to approve a loan for or not. Now, if all these criteria are checked by the underwriter (the person who checks all possibilities and get to a conclusion if the lender should approve the loan for the borrower or not) and only when the loan is sanctioned. So there are fewer chances of loans getting defaulted. But, at times, while applying for a loan and understanding a burden, an individual may not think that it would be difficult for them to repay. What if suddenly a medical emergency comes and all the funds are then used for it. Plus also the monthly EMI amount is used in that? What in such case. Some people have mere negligence in repaying thinking this is not going to hurt them in future!
So even if the profile does not look risky and happily is approved there still would default. While taking a loan, every borrower should think with all the perspectives if that’s the best available and suitable option. If any situation may occur, there would hardly be chances of making the default or delayed payments or missed payments. Only then can one be responsible enough and not falling in personal loan defaults.