Facing a Sudden Income Slump and Have a Personal Loan to Repay Soon? Here's What to Do
5 min read | 3 months ago
Personal loans are undoubtedly some of the most-preferred financial solutions for those who are looking to cover various costs and meet sudden expenditure. To cite an instance, the volume of personal loan disbursals went up from 1.1 million in H1 FY2018-19 to a staggering 41.6 million in the same period for FY2024 as per reports, with overall loan value going up to Rs. 40,845 crores in comparison to Rs. 5,907 crores in this duration.
Interestingly, loan delinquencies or defaults have also come down marginally, taking up 3.6% of the overall portfolio as of September last year, while it was 3.9% as of March 2020. To keep this perspective in mind, you should make sure that you do not end up defaulting on your loan and that too, without informing the lender. There is a general desire among borrowers to stay on the right side of things in terms of avoiding loan defaults, as these trends clearly indicate. Now, if you are finding it difficult to repay your current personal loan due to various reasons, you should adopt the right strategy in this case. Here’s finding out more in this regard.
Are You Finding It Hard to Repay Your Personal Loan in the Near Future?
For those looking for personal loans to meet sudden costs, the application should only be submitted once they are clear about their repayment ability and financial circumstances. This will ensure zero defaults on the loan in the near future. However, what happens when you find it hard to repay your personal loan down the line? This may happen due to various reasons, including the following:
- Unexpected job loss or layoff
- Loss in business
- Money stuck on account of salary/payment delays from employers or clients
- Huge expenditure on account of any medical emergency or other urgent family costs
These are scenarios that may make it difficult for you to repay your personal loan in the near future. What can you do in this case? Find out more below.
What Should You Do in Such Scenarios?
In case you find it hard to meet personal loan repayments, here are the strategies that you can adopt for a smoother and better outcome.
Remain calm and pragmatic- Feeling panicked and jittery is a natural first reaction in such a scenario. However, you should avoid stressing out, since it will only complicate matters further. Gather your thoughts and compose yourself before figuring out a strategy.
Have a chat with your lender- Make an appointment with your lender and once you visit the branch, have a detailed chat on the situation. Explain the reason why you are finding it difficult to continue personal loan repayments for a certain period.
Discuss available solutions- Lenders, particularly if you are an existing customer with a long relationship with the bank, may offer various solutions to you. These include more time to repay the loan, a restructuring of the loan with a higher tenure to lower the monthly EMI, or even a settlement in the worst-case scenario.
Refinancing- In case the above-mentioned solutions do not work out eventually, you can choose to refinance your personal loan. In this manner, you can shift your current loan to another bank if you get a lower and more favorable interest rate. However, your current credit score should be good enough to refinance your loan smoothly.
Look to conserve cash- To avoid defaults on your EMIs, you should look for other income sources or ways to conserve money. Consider taking up freelancing or part-time work along with budgeting carefully to free up more funds for repayment. Cut back on costs which are unnecessary, and you may find ample money to clear off your pending payments at times.
Dip into your assets- While it is the last step, you should look to dip into your existing assets in case you have no other options at hand for repayment. You may sell a valuable item such as jewellery, artwork, and other assets, in addition to liquidating investments like fixed or recurring deposits, mutual funds, insurance policies, and so on.
These are some of the ways in which you can navigate these situations and work out a solution for repayment accordingly.
Conclusion
As you can see, there is always enough room for discussions and negotiations with the lender or even scope for refinancing in case you face any such difficulties in repaying your personal loan. It is also advisable to keep at least 3-4 months’ worth of personal loan EMIs and even other household costs in your savings bank account as a temporary solution in case of sudden job losses or other financial upheavals. This will help you encounter these challenges with more confidence. So, before applying for a loan, you should first look to arrange sufficient surplus funds in order to avoid these difficulties later on.
FAQs
1.Can I transfer my personal loan to another lender?
You can refinance your loan and shift it to another bank or financial institution in case you get a better interest rate and any additional benefits.
2.Are there processing charges on personal loans?
Yes, lenders often charge processing fees for personal loans, which may range between 1-2% or higher/lower, depending on their policies. Some may even offer waivers on the same for their customers.
3.How much reserve money should I keep whenever I take a loan?
When you take any loan, keep at least 3-4 months of the EMI amount in your account. This will help you cope with sudden situations like job losses or financial difficulties that may otherwise hinder your ability to repay the loan.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
