While it is always better to save for future needs to avoid getting into debt, sometimes life conspires against you, and you find yourself choosing which bank has better terms and conditions on loans.
A loan can be an unwise choice when you have other affordable options, like savings or borrowing from friends and family. But when those options are not available, you learn borrowing isn’t bad after all.
You will be ok when you work, a good credit officer, and use the money for the right reasons.
But what if you cannot repay or fall behind on your installments? It happens to the best of us. Today, we will learn about measures you can take to avoid defaulting on your online personal loans or other debts.
- What is a personal loan?
This are money borrowed for about any purpose. These can be school fees, emergency bills, building a family home, going on a vacation, or boosting your business stock.
Most personal loans are unsecured and paid back in monthly instalment’s depending on the amount of loan, instalments, and loan duration.
- Advantage of taking a personal loan over other credits
Personal loans are mostly unsecured. The unsecured feature makes it less risky and attractive to borrowers than secured credit, which risks repossession of your collateral. It is difficult when the collateral is your house, car, or something important.
Personal loans are cheaper and easier to manage than a credit card because a credit card’s interest revolves around the needs of the owner, while a personal loan has a steady repayment plan with a lower interest rate.
It also gives you the independence of owning your business which is not the case when you get an investor or a partner.
- Reasons for borrowing
Sometimes you may not always prevent job losses or emergencies. Other times, it makes sense to boost your business or venture into a new one.
Going for that long-awaited vacation or spoiling yourself with the latest car model makes more sense when you feel it’s the right time.
After the credit officer does his due diligence, which includes your borrowing background and approves your loan, you will sign a contract that has some agreements on the terms and conditions of having the money in your account. This agreement is a covenant that stipulates:
- Type of collateral, value
- Interest rate terms
- Also, default terms and conditions.
- What are the red flags that I’m defaulting?
I believe when you decide to go to a financial institution; you had every intention of repaying your loan and abiding by the agreement. Then, something unexpected came up that mess your financial situation and threw your business off balance. Leaving you at the risk of defaulting.
When your monthly payment is beyond thirty days overdue, and you do not know how you will pay. You should worry unless you work fast. Read more here https://www.thebalance.com/options-for-when-you-cannot-make-a-loan-payment-4083188
- How does the bank categorize defaulters?
You will be in default when your payment is late by 30 to 90 days.
The bank may not act immediately after a lapse of thirty days. But, a day after thirty days, expect a call from your credit officer.
- What can I do when I don’t have my instalments?
You will need to be proactive to prevent the bank from exercising its legal right against you.
The first thing that you should do is to contact your credit officer. You may not be having the instalments, but that phone call can save you a lot of damages.
- Consequences of defaulting on your loan
To be marked as a defaulter is an offense worse when your financier reports you for late repayment to the credit bureaus.
It will stain your financial report and may take up to seven years to be amended even after clearing.
You may receive phone calls, demand letters, or text messages from the collection company that is itching to auction you off.
If the loan is secured by an asset such as your house, car, stock investment accounts, you may lose them.
A guarantor is a contingent liability. As a result, the bank treats the guarantor as the borrower. The only difference is the money did not go to his account. Click here to read more.
Borrowing money is an enormous commitment, however small. Your best judgment will caution you against it. Though its difficult to avoid it especially when you are a businessperson and looking to expand or when faced with a pressing need with no better alternative.
However, if you are a good financial manager, the benefits of a personal loan overshadow the disadvantages. Take the loan plan for your financials and empower yourself. After all, the first thing you learn as a millionaire (OPM) is Other People’s Money.