5 Reasons Why you Should Pay your Personal Loan EMIs on Time
Personal Loans are all-purpose, unsecured loans that can be used flexibly to meet a host of financial needs. You can use these funds for a mix of requirements. They do not come attached with any end-use clause, as is the case with a Home Loan or an Auto Loan. Over the years, the penetration of Personal Loans has mushroomed at the highest rate among all others types of loans, in tier 1 to tier 3 cities.
Thanks to confluence of digital lending, AI & data analytics, lenders are able to assess the credit quality of the applicants at faster pace, thereby improving the pace of overall loan processing. You can now borrow a Personal Loan same day online, without any need to visit the bank’s branch. Herein it is also important to reiterate that your Credit Rating has a greater role in making you eligible for a Personal Loan or any type of credit facility. Thus, repaying your loan in time is as important as choosing the most affordable loan deal for anyone who wants to access bank products seamlessly.
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Let’s find out how does repaying Personal Loan EMIs in time, is advantageous to you:
1. Credit history
Personal loans can be borrowed for as low as Rs 50,000 to Rs 40 Lakh, for a few months to maximum of 5 years. Some lenders do offer extended tenure of 7 years as well. Thus the range of credit facility varies a lot. You can borrow as per your convenience.
Repaying EMIs successfully each month builds up good Credit History consistently for you, thereby improving your credit score and credit worthiness. Indeed it is one of the good strategies to avail a small cash loan to boost your credit rating for larger loans in the later stage in life. A lot of experts suggest prepaying your Personal Loan Before applying for a Home Loan as it helps improve the Income to EMI ratio and thus makes you eligible for more amount of loan.
In most cases Short Term Personal Loans can be repaid flexibly without any foreclosure charge. However, many lenders levy 2 to 4 % of foreclosure charge in the initial period of the loan for long tenure loans.
A lot of lenders offer flexibility on prepaying Personal Loans. For instance Bajaj Finserv Personal Loan allows you to prepay EMIs up to 6 times in a calendar year. You can prepay as per your convenience. The minimum prepayment should be equal to 3 EMIs or more and maximum limit is not set.
It is thus recommended that you check the repayment clauses before availing the loan.
2. Preapproved offers
When you repay your loans month-on-month in time, your lender tends to reward you with preapproved offers. For, it is always beneficial for a bank/ NBFC to lend to the customer who is likely to pay back. The offers may even include waiver on processing fee for next loan or a flat discount on internet banking transactions.
3. Credit Card
If you have always envied your friend who flaunts her premium Credit Card that makes her eligible for Airport Lounge Access, coupons at Shopper Stop, free air miles and so on, paying out your Personal Loan EMIs on time can be a key to a premium card.
Chances are high that your bank may send a preapproved Credit Card offer, when you maintain a consistent repayment history. In many cases, when you also have a Credit Card with your lender, a good repayment history builds up relationship with the bank and can be offered an upgraded Credit Card.
4. Home Loan
Home Loans are long term commitments which require thorough planning and clarity for future outlook. In case you have a plan to buy a home, you may use a Credit Card or Personal Loan to Improve your Credit Score.
Yes, with good credit history and credit score, your loan application will be eligible for better amount and rate of interest. Being a long term loan, even a small variation in the interest rate will help you tap major savings in interest payment.
The lender may even offer extended discount and better rate to an existing customer. Thus, by repaying your loan in time, you can plan another loan with the same lender at better terms. See if choosing the same lender for both personal loan as well as home loan is beneficial. For instance, you may choose Tata Capital Personal Loan, in case you are planning to apply for housing long from Tata capital product in the future.
5. Eases stress of debt payment
Prepaying a loan in time help you manage debt stress as you do not carry any blues regarding credit score. With good credit history your score keeps on improving thereby ensuring you credit worthiness whenever you need funds in future. Also the credit history improves your relationship with the lender. You can always use this unblemished credit history in favour of negotiating for better rates, restructuring loan terms, refinancing, top-up etc.
Hence a clean history helps you better navigate through the crisis situation.
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