For the most part, many are faced with a liquidity crisis where they only take out a loan to deal with a financial crisis. For any financial or medical emergency, most are looking for a personal loan as it is a suitable choice to get money out of the box. More and more people are now also taking out personal loans for purchases, especially the large ones.
However, the timely repayment of loans of any kind is a must for the customer.
Rohit Garg, Co-Founder and CEO of SmartCoin, says: “The timely repayment of a loan facilitates and improves banking operations through the constant injection of capital and at the same time has a positive effect on customers in many ways.”
Here’s how a delay in paying back your loans can affect you;
Serious credit impact
While paying a loan is another consideration, late payments can have a significant impact on your credit score. Your repayment history directly affects your creditworthiness. The sanctioning of a loan to a person with a credit score of over 750 out of 900 is considered “prime”. The more you lag behind in repayment, the more your credit score will drop.
SmartCoin’s Garg says, “While it wouldn’t hurt your credit score much if you were a few days late on a repayment schedule, the continuation of the trend of more frequent late payments will hurt your credit score badly. Lenders also prefer people with better credit ratings out of caution. “
According to experts, the first thing you should do when using your credit card during a purchase is to make sure you have a plan and sufficient repayment capacity to repay the amount at the end of your billing cycle.
Credit cards come out on top in terms of the interest rate on the amount outstanding, which is up to 45 percent – 48 percent per year. So try to avoid this at all costs.
Family members (heirs) can inherit unpaid debts
In the event of a person’s death, the heirs may be responsible for paying back the unpaid debts. Garg of SmartCoin says, “Usually the responsibility in these cases rests with the guarantor, but in his absence the legal heir becomes responsible for paying the debt. So every time you take out a loan, make sure that you have the income to make the repayment on time. “
Loans are useful and obviously help us through our troubled times, but late payments and defaults can negatively affect your overall credit history in the long run.