5 ways to plan for short-term loan repayment

The FinTech boom in the country has been nothing less than a blessing in disguise for individuals facing financial issues. Now, you can not only manage your financial problems without any hassles but also need not borrow money from any of your friends or family.

Short-term loan image for article m1234m4456The rising competition in the financial services industry is making the financial institutions offer Personal Loans at customer-friendly terms. Add to it the inherent benefits of a Personal Loan, such as extended repayment tenor, high-value loans, low processing fee, collateral-free approval, the flexibility of usage, and you can effortlessly manage your financial liabilities.

If your profile meets the eligibility criteria required for an easy Personal Loan, you can avail of a high-value unsecured loan up to Rs. 25 Lakh and that too in a quick time. Some of the most popular options in the market are HDFC Personal Loan, Bajaj Finserv Personal Loan, and ICICI Bank Personal Loan.

Planning for personal loan repayment

While most of the lenders these days are vying among themselves to capture customers’ attention, it is no longer a task to avail of a loan these days. Ensuring timely repayment of the loan is entirely your responsibility.

As you would be availing of a Personal Loan due to lack of funds, it is natural for things to go haywire during repayments. Any default in repayments will not only lead to various penal charges being levied but can also impact your credit score. Therefore you must plan your repayments as and when you apply for a Personal Loan.

If you are unsure about the optimal methods to approach for loan repayments, then here are five most useful tips to help you with the task:

Borrow what you require

A lender assesses your eligibility based on your credit profile. If you have been exercising financial discipline in your life so far, you will likely be eligible for an amount which is more than what you require. It is very easy for you to get swayed by the availability of additional funds for credit.

Borrowing more than what you require is not recommended. Ultimately it is a loan and carries an interest cost. Moreover, the repayments have to be made through regular EMIs, i.e., a monthly burden on your shoulders.

Therefore, borrow the amount which you require and keep the EMI burden low. Having a manageable EMI liability is the first step in ensuring timely repayments.

Select the shortest possible repayment tenor

When it comes to availing a bank loan, there is a general tendency to opt for the longest repayment tenor available. The rationale behind this decision is the attraction of lower EMI. But one fact that is usually ignored is the significantly high-interest cost that one would bear over time. Therefore, you must opt for the shortest possible repayment tenor with an EMI amount that you can easily afford.

Indeed it is recommended to make part pre-payments whenever possible. Though, before exercising this option, do check, if there are any pre-payment charges. For instance, when you avail of a PNB Personal Loan, you can choose a repayment tenor between 12 months to 60 months. So, select the duration which gives you EMIs that you can afford.

Assess your investments

Personal Loan Interest Rates in India start from 10.99% to 24% per annum, depending on the applicant’s profile and lender’s credit policy. You must assess the returns you are generating from your investments and compare them with the interest cost you are bearing on loans.

If the difference is substantial, you can consider liquidating your investment and repaying the Personal Loan instead. Though, if you do not wish to liquidate your investments, you can take a low-interest loan against it and use the money for repaying high-interest Personal Loans.

For instance, the prevailing interest rate against Fixed Deposits with most banks varies between 6% to 8%. Now, if the Personal Loan interest rate you are serving is 15%, then it would be sensible to liquidate your fixed deposit and pay-off the Personal Loan. Alternatively, you can avail of a loan against FD, for which you are charged around 1-2% over the FD interest rate and use the money to repay your Personal Loan.

Additional source of income

You avail a Personal Loan during desperate times, and desperate times call for desperate measures. Therefore, you must look for additional sources of income which can help you with short term loan repayments. You can take up a part-time job or start a small business from your home. Additionally, if you have any windfall gains such as tax refund or cash gift from a family member, do not splurge that money. Instead, use it to repay your Personal Loan as soon as possible.

Convert Credit Card dues into EMIs

If you are using Credit Cards, then this piece of advice will come handy. Credit Cards usually come with an interest-free credit period of 50 days. If you are unable to settle your entire Credit Card dues and also have a running Personal Loan, it gets tricky to settle the debt down. The interest rate against Credit Card can go up to 48% per annum, acting as a significant drain on your resources.

You must, therefore, first convert your Credit Card dues into EMIs, as it will not only reduce your interest cost but would also offer you much-needed breathing space with your financials. Use the money you save with your Credit Card payments to repay your Personal Loan in a quick time. Gradually you can prepare for card payment in the coming months.

Observing financial discipline is imperative to ensure timely repayment of your Personal Loan.

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Interesting related article: “What is a Personal Loan?