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How to prevent your loan from turning into bad debt?

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How can you effectively deal with a situation when you require funds to realise your financial goals or to cope up with an emergency? Without any doubt, you will look for a viable credit product such as an online personal loan. The best personal loan can provide for immediate finances, thus allowing you access to the requisite funds. At times companies use these funds to strengthen their position in the market, that is for example the case of BNHLF stock. But, while the loan can provide you financial aid in difficult times, it is of paramount importance to repay it within the stipulated time as per the schedule. A defaulted personal loan classifies as a bad debt, and can jeopardize your financial goals. To prevent such a scenario, you must keep in mind certain key factors, while making a loan application :

  1. Negotiate for a lower interest rate and fewer charges : To prevent a scenario of your online personal loan turning into a bad debt, you should always bargain with the lending institution for a lower interest rate. Remember, if you are taking a personal loan to fund big-ticket expenses such as higher education, foriegn travel, meeting the cost  of a destination wedding, and so on, even a slight variation in the interest rates will have a considerable impact on your EMIs. If you have a good credit score – of 750 or above – you can easily negotiate for attractive rates of interest. Alongside, do remember that various lending institutions charge a slew of fees such as processing fee, documentation fees etc. You can negotiate with the lender to either waive-off the associated charges, or keep them at the minimum.
  2. Make timely repayments : Once you have availed the best personal loan, you must strictly adhere to the schedule of making timely EMI payments. Remember, missing few EMI payments will increase the quantum of payments drastically because of the effect of compounding. This can easily turn your personal loan into a bad debt.
  3. Limit your Credit Utilisation Ratio (CUR) : Credit Utilisation Ratio is expressed as the percentage between the total available credit and the credit actually availed. If you have a credit card with a high CUR, it can adversely impact your finances, and affect your capability of making timely EMI payments. Market experts suggest keeping your CUR at 30% or below.
  4. Don’t take an online personal loan without reading the fine-print : Before availing the best personal loan, always remember to read the terms and conditions, disclosures and other information mentioned in the fine-print.  These are typically mentioned in the footnotes or in a supplementary document. You must consider the critical terms and conditions such as prepayment/foreclosure charges, late fine, other penalties and the clause for revision of personal loan interest rates.
  5. Borrow the amount which you can repay : To prevent your online personal loan from turning into a bad debt, never overestimate your repayment capability. You must choose the right loan amount after due diligence. Remember, apart from making EMI payments for the personal loan, you can also have other pressing financial commitments. You can also consider creating an emergency corpus for meeting your EMI payments, in the unfortunate event of loss of income/employment.
  6. Don’t rush for a new personal loan when you already have debt obligations : Simply because you are eligible for an online personal loan doesn’t mean you should go ahead and grab the opportunity. Go for it only when you have not availed any other personal loan from a different lender. Having multiple loans simultaneously will adversely affect your finances. According to market experts, you can consider availing a single high-value personal loan as compared to multiple loans for small amounts. You can find it difficult to keep track of multiple loans and make timely repayments.

 

Thus, by maintaining financial discipline, and considering the above-mentioned tips, you can prevent your loan from turning into a bad debt. While applying for an online personal loan, it is also of key importance to select a trusted and reputed financial institution. You can rely on the best personal loans, available on Finserv MARKETS app. Along with quick loan approval and disbursal, you get access to multiple benefits such as attractive interest rates, flexible repayment tenures, zero foreclosure charges and personalized pre-approved offers. Here, you can get a high-value

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