5 tips To Avoid Defaulting On Your Personal Loan

Posted on Tuesday, November 28th, 2023 | By IndusInd Bank

A personal loan can help you deal with various financial situations, including medical emergencies, wedding expenses, children’s education, etc. While personal loans are ideal for various needs, responsible management is crucial to avoid default.

Defaulting on a personal loan harms your credit score and can lead to financial and legal troubles. Below are five essential tips to help you prevent defaulting on your personal loan.

Tips to avoid defaulting on a personal loan

Borrow within your means

When applying for a personal loan, it is imperative to assess your current financial situation realistically and to check for your personal loan eligibility. Borrow only the amount you genuinely need and can afford to repay without straining your budget.

Lenders often consider your income, existing debts and monthly expenses to determine your eligibility and loan amount. Avoid over-borrowing to minimise the risk of default.

Understand the loan terms thoroughly

Before signing any loan agreement, take the time to understand the terms and conditions of the loan. Review the interest rate, repayment schedule, and any associated fees to avoid surprises later.

Clear communication with your lender is key to preventing misunderstandings. If unclear about any loan terms, consult your lender or a financial adviser.

Create a realistic repayment plan

Developing a well-thought-out repayment plan is essential for staying on top of your personal loan repayments. Set up a budget that accounts for your loan instalment, along with other monthly expenses.

Ensure that your loan repayment does not exceed a reasonable portion of your monthly income. By structuring your finances this way, you will have a clearer picture of your financial obligations and can avoid defaulting due to missed payments.

Prioritise timely payments

Meeting your loan payments on time is critical to prevent defaulting on your loan. Set up reminders or automatic payments to ensure you never miss a due date. Late payments not only lead to additional fees and penalties but also negatively impact your credit score.

If you foresee difficulties in making a payment, reach out to your lender as early as possible. Some lenders offer flexible repayment options during times of financial hardship.

Prepare an emergency fund

Unexpected financial challenges can arise at any time. Having an emergency fund can act as a safety net, helping you avoid defaulting during unforeseen events like a medical emergency or job loss.

You should strive to build an emergency fund equivalent to at least three to six months’ worth of living expenses. This fund can provide you with the necessary cushion to continue making loan payments during difficult times.

How do monthly loan EMIs work?

Your monthly loan EMIs are determined according to the interest rate being offered by the lender. The interest rate is a crucial component of personal loans since it helps determine the total interest you pay over the tenure of the loan. Knowing your monthly EMI in advance can help you plan your budget accordingly and prevent defaulting on your loan.

You can use a personal loan EMI calculator and plan your expenses better.

Following the aforementioned tips can help you avoid defaulting on your personal loan repayment. However, it is also important to understand the factors that affect the interest you pay on your personal loan, which help determine your monthly loan EMIs.

Factors influencing personal loan interest rates

• Credit score: A higher credit score typically leads to a lower interest rate as it reflects your creditworthiness to the lender.
  
  
• Income: Your income level helps the bank assess your repayment capacity. Higher income may lead to a more favourable interest rate, as it reduces the chances of you defaulting on your loan.
  
  
• Loan amount: The loan amount you request can impact the interest rate. Larger loan amounts might have slightly higher rates.
  
  
• Loan tenure: Longer loan tenures might have slightly higher interest rates due to increased risk for the bank.

IndusInd Bank Personal Loan

IndusInd Bank offers personal loans that can be used for any kind of expense, such as medical emergencies, weddings, vacations, and much more.

Here are the features of the personal loans offered by IndusInd Bank –

• Interest rates starting from just 10.49% p.a. 
• Tenures ranging from 12 to 48 months
• Loan amounts ranging from ₹30,000 to ₹5 lakhs
• 100% digital application process

Final thoughts

Defaulting on a personal loan can have severe consequences, affecting your credit history and overall financial well-being. Follow these five key tips to keep your finances in check and avoid loan default.

Responsible borrowing, understanding loan terms, and creating a practical repayment plan are key elements in successfully managing your personal loan. IndusInd Bank offers personal loans at competitive interest rates, allowing you to cater to all your financial needs. Apply now!

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.