How to avoid Loan Trap : Loans make your life easy but only when you follow the discipline associated with it. The biggest responsibility with a loan is to repay it on time. If you have taken a loan and do not follow its rule book, then you may be in trouble. If you keep in mind these five things related to loan repayment, then life will become easier for you.
1. Pay EMI on time
Failure to pay EMIs and credit card dues on time can ruin your credit score. If you do not pay the EMI on the due date or do not pay the credit card bill, then there is a heavy charge on it. The credit score is also bad and because of this you may have to pay more interest on any next loan. This also makes it difficult for you to get a credit card.
2. Include loan EMI in emergency fund
Emergency fund is meant to meet any sudden crisis. This includes loss of job, illness, disability or other adverse circumstances. Generally, the size of the emergency fund should be equal to your expenses for six months. These expenses are necessary. But with this the loan EMI should also be added so that the loan installment does not stop in any adverse situation.
3.Select Balance Transfer Option
The balance transfer option allows you to transfer your existing loan to a lower interest-charging lender. This reduces your EMI burden. Nowadays fintech companies provide these facilities easily. You can transfer your existing loan to those banks, NBFCs or lending companies which are charging less interest whenever it is convenient. However, keeping in mind the processing fees and documentation expenses, it should be calculated whether you are really finding it cheaper to transfer the loan.
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4. If you have surplus funds, repay the loan ahead of time
If you have surplus funds, repay a part of the loan. This will reduce the interest burden on you. Especially if you can do this in the initial years of your loan tenure, it will reduce your EMI significantly. If you have multiple loans at once, then pay off the loan with the highest interest rate first. RBI prevents banks from penalizing the prepayment of loans taken at floating rate. But there is a charge on prepayment of loan taken against fixed interest. Never prepay a loan from an emergency fund.
5. Review Credit Reports
Your credit report is a summary of your loan and credit card related activities. Credit bureaus calculate your credit score on the basis of your credit report. Any mistake made by the credit bureaus or banks affects your credit score. Therefore, if you review your credit report from time to time, then get such mistakes corrected immediately.