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How to prevent your loan from turning into bad debt?

How to prevent your loan from turning into bad debt?
  1. Pay EMIs on Time

One of the most important steps to take to prevent your personal loan from turning into bad debt is to pay your EMIs regularly. More often than not, many individuals have monthly financial responsibilities such as utility bills and essentials. As a result, it is possible to run short on repaying EMIs of the personal loan availed. However, you should prioritize EMI repayment as it can avoid high-interest debt in the future. If you do not make timely payments, it is possible for the EMIs to cause a severe financial burden close to the end of your loan tenure. 

  1. Keep Your CUR Under 30%

CUR is the Credit Utilization Ratio. Usually, the CUR is gradually increased by your lender or credit provider based on your credit history. However, as your credit limit increases, be wary to not spend the entire limit granted to you as it could lead to huge debt. Always ensure to maintain your CUR below 30% as it is considered to be the most nominal and plausible repayment amount by many. This would not only help you avoid bad debt, but will also improve your credit score. 

  1. Borrow After Thoroughly Reading the Terms

In some cases, a few loan applicants fail to read the entire paperwork pertaining to a personal loan before signing and availing of one. There are several details mentioned in the loan agreement such as penalties, late-repayment charges, rate revisions, and many more which have to be thoroughly understood before taking a personal loan. So, ensure to read all of the terms and conditions. Get legal advice, if necessary. 

  1. Borrow Considering Your Repayment Capacity

While borrowing a personal loan, the capital acquired is typically large. So, stay mindful of how much you can repay through EMIs and other means by the end of the mentioned tenure. If the capital is too high for your repayment capacity, it is always best to consider a more feasible option. 

  1. Pick a Loan with a Lower Interest Rate

While selecting a personal loan that you want, ensure that you compare the rate of interest of personal loan offered for the loan with several other lenders. To make your personal loan repayment journey smooth and stress-free, avail of a loan with a lower interest rate. 

Consequences of Loans Turning Into Bad Debts 

  1. Poor Credit Score

One of the main criteria for calculating the credit score is your activities when it comes to repayment of credit. So, if you do not pay your EMIs or your entire personal loan in the given time, your credit score would reduce thereby reflecting poorly on your entire financial reputation. 

  1. Difficulties With Future Credit

If you do not repay your personal loan on time and end up delaying the payment, it will reflect on your credit score thereby causing difficulty when you would like to borrow credit in the future. Moreover, you might also be asked to pay a higher rate of interest of personal loan due to the poor credit history. 

Final Thoughts 

Availing a personal loan has been made simple by Finserv MARKETS. You can choose a personal loan for your unique needs facilitated by Finserv MARKETS as you can pick from a flexible loan tenure and you would not be asked for any collateral. However, loan repayment has to be carried out in a timely process to avoid bad debt in the long run. Bad debt can have severe consequences and negatively impact your credit score thereby hindering the process of borrowing credit in the future. 


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