Effect of Loan Overdue on Your Financial Health and How to Repay Loans
Loan overdue refers to the loan amount that a customer fails to repay on time. In such cases, the lender might charge an overdue interest rate or late payment fee on the amount overdue. If you miss EMI payments on a regular basis, the Loan Overdue Amount can significantly increase due to various penalties and additional interest that the lender may impose on late payments.
Effect of Loan Overdue on your Financial Health
Credit Score
A single missed payment has little impact on your credit report. However, if you haven’t paid your EMIs in the last three months, it will severely impact your credit score.
This may result in the rejection of future credit applications since lenders constantly review a person’s credit record to assess their repayment history before disbursing a loan or providing a credit card. As a result, it is always a good idea to pay your loan on time. You must select the loan amount based on your needs and repayment capacity.
Late Payment Penalty
Before taking out a loan, you should make sure that you have a well-defined repayment strategy. Failing to pay your EMIs on time can affect your credit score, and that’s a given. But that’s not all, you may have to pay a penalty fee to your lender for late payment.
Depending on the type of loan, this additional Penal Interest Rate may vary from one lender to the next. For personal loans, it’s usually 2% per month on the amount overdue.
Loss of security
If you have a Home Loan or any other secured loan, such as a Gold Loan, a Loan Against Property, or a Loan Against Securities (Shares, Mutual Funds, Bonds, and so on), the loan’s late amount might lead to the loss of your collateral. Let’s break this out a little more.
If the loan overdue amount has increased for the past three months, i.e., the borrower has not paid the EMIs for the previous 90 days, the loan could be categorised as a non-performing asset (NPA). In such cases, lenders typically send reminders and 60-day warnings about the Loan Overdue Amount.
If you do not pay the Loan Overdue Amount within the notification period, the lender has the right to liquidate the assets you pledged as collateral. However, lenders usually give a 30-day notice before the auction.
Is Settling the Overdue Loan Amount a Good Choice?
Settling a loan is very different from repaying a loan and should not be confused with each other. In case of a loan settlement, the lending institution closes an individual’s loan account and reports the account as “settled” to the credit bureaus. However, this settled account is not considered a normal closure of the account and reflects badly on the individual’s credit profile.
A settled account can bring down the credit score significantly, making it difficult for the individual to get loans approved for the next few years. That’s why settling the loan overdue amount may not be the ideal solution. However, you could get help in the form of a cash loan. Scroll down to know how a personal loan could be helpful in repaying the loan overdue.
How can Personal Loan Help Clear Outstanding Payments?
It is how a personal loan can assist you in paying off past-due bills:
- Debt Consolidation: In case you are paying multiple EMIs on different personal loan accounts, you can consolidate your debt under one personal loan with lower interest rates. This will help you close other loan accounts while you pay EMIs only for a single personal loan account.
- An easier way to clear outstanding payments: Personal loans are more accessible than ever. All you need to make sure is to meet your lender’s eligibility criteria. Once the loan is transferred into your account, you can clear your outstanding dues conveniently. However, note that you will still be in debt. Hence, gauge your repayment capacity before taking a loan.
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Eligibility Criteria for Availing a Personal Loan to Clear the Overdue Amount
Many people take cash loan in order to clear their loan overdue. If one wishes to do that, he/she needs to fulfil the following criteria first to avail of a personal loan:
- Individuals borrowing the loan should be between the age of 21-60 years
- The borrower applying for the loan should earn at least Rs 25,000 monthly in cities like Delhi and Mumbai and a minimum of Rs 20,000 in other cities of India.
- Applicants should be employed in a private or public sector office. Self-employed employees must have a minimum turnover that the lending institution approves.
- The borrower’s credit score should be more than or equal to 750
- Individuals should show a minimum work experience of 1 year and 6 months experience in the present organisation.
Note that these requirements may vary across different financial institutions.
Delay in paying the overdue sum increases the amount of interest that must be paid, resulting in a mountain of debt. Delaying payments lower your credit score and increase your chances of having your loan denied in the future.
Final Word
Integrate healthy financial habits into your lifestyle so that you can pay your dues on time. Always ensure that you have a separate fund set aside for your EMI obligations. In case you’re looking for a personal loan to clear your dues, you can download the Navi app. The loan application process is simple and 100% paperless, and you can get loans up to Rs.20 lakh at competitive rates starting at 9.9% p.a. Within minutes.
FAQs on Loan Overdue
Ans: If you’re thinking about repaying debt, your savings account is the first place you’d look. You can use your savings to foreclose on the debt, but you’ll need a significant amount of money to do so. Keeping your focus on a loan with the highest interest rate is a fantastic method to start paying off your obligations.
Ans: While you may utilise one loan to pay off another, be sure to read the tiny print of your loan terms and conditions carefully. Also, most importantly, gauge your repayment capacity before taking another loan.
Ans: Prepaying your current personal loan in full or foreclosing it can reduce the debt burden off your shoulder. However, it’s your call entirely, whether you want to prepay your loan. Lenders like Navi don’t charge any fee for personal loan pre-closure.
Ans: You need to use a personal loan eligibility calculator to gauge the amount of personal loan you can get approved. Note that the personal loan amount that you can get also depends upon the lending institution.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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