Top 5 Tips For Paying Your Personal Loan EMI - Unity Bank
5 min read | 10 months ago
Have you applied for a personal loan to meet any immediate or short-term financial needs? You are not alone, going by the large number of Indians choosing personal loans for various reasons. According to a CRIF-FIDC report, non-banking finance companies (NBFCs) disbursed INR 64,778.27 crore in personal loans in the final quarter of FY2023-24. Now imagine the sheer volume of loans disbursed by banks in this category, and the total figure will certainly be mindboggling.
However, after applying for your personal loan, it is important to create an effective repayment strategy in advance. It will help you maintain a healthy credit score while avoiding any piling-up of debt.
This guide will help you understand a few essential points for paying your personal loan EMI.
Set Up Automatic Payments
Digitization has altered the banking and finance landscape in India. From quick personal loans online approvals to easy loan processing, contemporary banks offer several benefits to their customers. Take advantage of modern payment systems and set up automatic EMI payments from your bank account. It will ensure zero payment glitches since your EMI will be automatically debited on its due date each month. This step will significantly reduce the chances of defaults, and you will never have to worry about forgetting/missing the due date again.
Prioritize Loan Payments in Your Budget
Prioritizing personal loan payments in your monthly budget is always a good idea. Note your fixed monthly costs, including utility bills, rent (if applicable), other EMIs, food and groceries, and other necessities like school fees. Focus on repaying your loan EMI first before meeting the other overheads. Select an EMI date closer to your usual salary date for this purpose. It will help you avoid a scenario where a large part of your income goes into paying monthly expenses, and you are left with insufficient funds to repay your personal loan later on.
Understand Penalties For Missed Payments
Understand the penalties and consequences of missing personal loan EMI payments. Read the loan terms and conditions carefully before signing on the dotted line. Several banks and financial institutions charge penalties for missed payments. The amount charged is usually around 1-2% of the due EMI amount, although it varies across lenders.
If you miss an EMI, you will receive a reminder from your lender via a phone call, SMS, email, or notification. If you cannot pay on genuine grounds, your lender may grant you more time beyond the due date. Failing to meet this extended date means forking out the penalty and harming your CIBIL score simultaneously.
Once you are sure about where to apply, make sure you follow all the steps carefully. Fill out the application form with your details and upload the necessary documents. These usually include your age, address, identity, and income proof (salary slips/Form 16 and bank statements for the last 3-6 months). Complete the application process swiftly and contact the lender’s support team for assistance.
Consider Making Extra Payments
Personal loan finance is unsecured credit or debt without any collateral or asset to secure it. Hence, interest rates on these loans are often higher than secured loans like home loans or car loans. Consider swiftly repaying personal loans to avoid paying more interest over a sustained duration. Consider making extra payments on your loan periodically. It will significantly lower the interest costs and help you clear the loan faster.
However, check the lender’s prepayment terms and conditions beforehand. Some banks may have prepayment charges, while some may have specific restrictions on the prepayment amount or frequency. If you get surplus cash or a bonus, consider using it to prepay your personal loan. Your loan tenure will also reduce as a result.
Choose the Right Loan Tenure
One of the best ways to manage personal loan repayments is to select a suitable loan tenure. Many banks and financial institutions offer tenures from a few months to 36 months and upwards. If you choose a longer tenure, then your monthly EMIs will go down while they will be higher in case of a shorter repayment period. However, the downside of a longer tenure is that you will pay more interest on the loan. Choose your loan tenure based on your financial situation and what you can afford to repay each month. It will minimize the chances of defaults.
Conclusion
You must adopt a proper personal loan repayment strategy right after you receive the funds from the bank. A survey by Finology Ventures titled India’s money habits shows how two out of every five Indians may never escape the classic debt trap. It also highlights how 27% of citizens struggle to clear their debts. To avoid a similar scenario, prioritize paying off your personal loan on time without defaults.
If managed well, a personal loan can help you meet immediate requirements while boosting your credit score in the long run. You can check out various personal loan offers from Unity Small Finance Bank that come with fast processing and various benefits.
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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.
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