What To Do If Your Personal Loan Becomes Costlier | Unity Bank
5 min read | 3 months ago
What To Do If Your Personal Loan Gets Costlier
So you've taken out a personal loan, thinking everything is perfect.But suddenly things have changed and the loan becomes more expensive than you expected.Don't worry. You can still manage the situation. Wondering how? In this guide, we will show you the different scenarios that can make a personal loan more costly and how you can deal with them to manage a higher personal loan bank EMI smartly.
Situations Where Personal Loans Can Get Costlier
Let's delve deeper into the situations where personal loans can become costlier, with more detailed examples.
1. Market Conditions Impacting Interest Rates:
Suppose you took out a personal loan bearing an annual interest rate of 10%. But now with financial conditions like inflation or a change of the monetary policy of the bank or RBI, the market rate shoots up to 12%. Consequently, your lender may have to increase your interest rate to reflect the current market situation, and your monthly payments will go up.
2. Opting for Floating Interest Rates:
Suppose you opted for a floating interest rate on long-term personal loans, initially set at 9% per annum. Over time, if market interest rates increase to 11%, your lender adjusts your rate accordingly. Accordingly, your EMIs (Equated Monthly Instalments) increase due to the higher interest rate, potentially causing financial strain.
3. Missed Payments or Defaulting on Other Loans:
Suppose you miss several payments on your credit card or miss an EMI on a loan elsewhere. It'll mean a significant decrement in your total credit score. When the lender personal loan bank that has lent you the loan goes over your record, it will spot the lowered credit worthiness. To offset an increased risk of loan default, the bank can hike the interest rate on your existing personal loan, for example, increasing it from 12% to 15%. In this scenario, your monthly EMIs can get costlier and the overall loan too.
4.Changes in Credit Profile:
Suppose you initially applied for a personal loan when your credit score was excellent, allowing you to secure a favourable interest rate of 8%. However, over time, due to financial difficulties or unforeseen circumstances, your credit score drops. When you apply for another loan or your existing lender reviews your profile, they may increase your interest rate to 10% or higher, reflecting the increased risk associated with your changed credit profile.
In each of these scenarios, the cost of your personal loan can shoot up due to factors such as market fluctuations, credit profile changes, and missed payments. It's crucial to stay informed about your loan terms and monitor your financial situation to avoid any surprises in the form of increased loan costs.
How to Manage Higher EMIs with Strategic Repayment Plans
Now, let's get down to business. How do you deal with these unexpected bumps in your loan journey? The key lies in proactive planning and strategic repayment.
1. Assess Your Financial Situation: Start by evaluating your current financial standing. Look at your income, expenses, and any other debts you might have. Understanding where you stand financially will help you devise a plan that's realistic and sustainable.
2. Negotiate with Your Lender: Don't be afraid to reach out to your lender and discuss your situation. Sometimes, they might be willing to offer you a better deal, especially if you have a good repayment track record. Ask them about options like extending the loan tenure or restructuring the EMIs to make them more manageable.
3. Consider Loan Refinancing: If negotiating with your current lender doesn't yield favorable results, consider refinancing your loan with another financial institution. Look for lenders offering lower interest rates or better terms that suit your financial situation. However, be cautious and ensure that the cost of refinancing doesn't outweigh the benefits.
4. Opt for Part Prepayment: If you find yourself with some extra cash, consider making a part prepayment towards your loan. This will not only reduce the outstanding principal amount but also help in lowering your future EMIs. Just make sure to check with your lender regarding any prepayment charges or penalties.
5. Explore Debt Consolidation: If you have multiple loans with varying interest rates, consolidating them into a single loan with a lower interest rate can be a smart move. This will simplify your debt repayment process and potentially reduce your overall interest burden.
6.Budget Wisely: Finally, make sure to budget wisely. Cut down on unnecessary expenses and allocate more towards your loan repayment. Every penny saved and redirected towards your loan can make a significant difference in the long run.
Conclusion
In conclusion, facing a situation where your personal loan becomes costlier can be stressful, but it's not something you can't handle. By being proactive, exploring your options, and implementing strategic repayment plans, you can navigate through these challenges smoothly. Remember, financial setbacks are a part of life, but how you deal with them defines your financial well-being. So, take charge of your finances, and don't let a pricier personal loan derail your financial goals.
FAQs
1. Why did my personal loan interest rate increase?
Your loan rate can rise due to various factors: economic conditions, changes in credit score, or lender policies. Contact your lender for specifics and explore options to mitigate the increase.
2. What steps should I take to avoid future loan cost hikes?
Maintain a good credit score, stay updated on market trends, compare loan offers, understand loan terms thoroughly, and consider fixed-rate loans for stability in repayment amounts.
3. What alternatives do I have if I can't afford the higher payments?
Explore options like loan modification, seeking a cosigner with better credit, or consolidating debt.
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.
