Why is timely repayment of loans important? Find out

More often than not many face cash crunch wherein they just take a loan to deal with a financial crisis. For any financial or medical emergency, most look towards a personal loan as it is an appropriate choice to get funds without much hassle. An increasing number of people are now taking personal loans even for purchases, especially the big-ticket ones.

Having said that, timely repayment of any kind of loan is a must for customers.

Rohit Garg, Co-founder and CEO, SmartCoin, says, “Repayment of any loan within the due time facilitates and enhances bank operations through the steady injection of capital, at the same time it also positively impacts customers in a plethora of ways.”

Here is how a delay in repaying your loans may impact you;

Severe impact on credit score

While paying a loan is another aspect, late payments can have a significant impact on your credit score. Your repayment history affects directly your credit score. To sanction a loan to an individual with credit scores above 750 out of 900 is deemed ‘prime’. The more you lag behind the repayment, the more your credit score will decline.

Garg, of SmartCoin, says “While it would not much affect your credit score to be a few days late on a repayment schedule, continuing a trend of frequent late payments will place a severe dent on your credit score. The lenders too as a matter of prudence favour people with a better credit score.”

Penal interest rate

If you are using your credit card while making a purchase, according to experts, first make sure you have a plan and sufficient repaying capacity to pay back the amount at the end of your billing cycle.

Credit cards stand at the top in terms of interest rate on the outstanding amount which goes up to as high as 45 per cent — 48 per cent per annum, hence, try to avoid it at any cost.

Family members (heirs) may inherit unpaid debt

In case of the demise of a person, the responsibility of repayment of the unpaid debt may fall upon their heirs. Garg, of SmartCoin, says “Usually, the responsibility in these cases falls on the guarantor but in absence of him/her, the legal heir becomes responsible for paying the debt. Hence, whenever you are taking a loan, ensure whether you have the income capacity to make the repayment on time.”

Loans are useful and obviously help us during our difficult times but late payments and default can have an adverse long term effect on your overall credit history.