An online personal loan offers quick access to funds for big purchases or covers financial shortfalls. However, these loans come with repayment obligations and interest costs. So, borrowing wisely and managing your loan properly is key to avoiding defaults, damage to your credit score, or debt cycles.
Though it may sound complicated, you can handle an online personal loan smoothly by planning the repayment tenure, tracking EMIs, maintaining your credit score and reaching out for assistance if needed. With some organisational skills and financial discipline, An online personal loan can relieve short-term financial challenges without leading to prolonged issues.
This step-by-step guide shares practical tips on using your loan wisely, making timely payments, and closing the loan tenure without hassle.
Tips for Effectively Managing Your Online Personal Loan
Here are practical steps to guide you in managing your personal loan wisely and avoiding financial stress.
1. Research the Loan Options Completely
When finding the right lender, you need to check:
- How much interest they make you pay, one-time fees they charge, total money they can lend you, number of months or years to pay back – compare all this across banks, loan companies that are not banks, new online lending companies, platforms where people lend to other people directly, and more.
- Ensure the lender is reliable and that many people who borrowed from them in the past can pay back their loans on time without issues. It is better to stay away from new lenders who just started giving loans recently and don’t have much experience yet.
Doing thorough research will help you make an informed borrowing decision that matches your financial situation.
2. Submit Complete Documentation
Lenders will ask for standard KYC and financial documents to assess your repayment capacity before disbursing the loan.
- Have copies of your identity proof, address proof, bank statements, salary slips, etc., ready.
- Accurately disclose existing loans, credit card dues, insurance premiums, rent, etc. Incorrect information can lead to loan rejection.
- Respond promptly to queries and submit additional papers if needed for speedy processing.
Submitting proper paperwork reduces processing time and establishes your creditworthiness.
3. Opt for the Shortest Feasible Tenure
Longer loan tenures seem attractive due to lower EMIs but mean paying more interest overall.
- Calculate your repayment ability and opt for the shortest tenure you can afford. This will lower your total interest outgo.
- You can also make part-prepayments or foreclose the loan early to reduce interest further. Check if there are any charges applicable for this.
Carefully evaluating repayment capacity and choosing tenure minimises interest burden.
4. Automate EMI Payments
One missed EMI can impact your credit score and lead to late payment fees—Automate payments to prevent default.
- Set up auto-debit from your bank account a few days before the EMI due date. This accounts for payment failures.
- Alternatively, schedule monthly transfers from your account to the lender account 2-3 working days before the EMI date.
- Activate payment reminders via SMS and email to avoid missing dues.
Automating payments ensures you never miss an EMI or damage your credit score.
5. Start Repaying Immediately
Instead of waiting for the EMI cycle to begin, repay the principal early, even in small amounts.
- Making part-prepayments reduces outstanding principal and lowers interest outgo.
- Even Rs 500-1000 paid additionally monthly can make a difference of thousands of rupees over the entire tenure.
Commencing repayments ahead of schedule cuts down interest and tenure faster.
6. Monitor Credit Score and Report Regularly
Check your credit report from CIBIL/Experian at least quarterly. Review loan status, overdues, score movement, etc.
- Errors like multiple loan accounts or wrong default data should be immediately raised with the lender and credit bureau.
- Timely repayments will steadily improve your score, increasing future loan eligibility.
Staying updated on your report and score enables early action wherever needed.
7. Avoid Further Loans During Tenure
Taking additional loans for other needs is tempting during an ongoing loan’s tenure. Avoid doing so.
- Additional EMIs when existing loans are underway increase the repayment burden significantly.
- Wait until existing loans are fully paid before applying for the next one.
Preventing loan pile-up avoids financial stress and repayment defaults.
8. Use Surplus Funds for Prepaying Loan
Use any windfalls or surplus savings to make part-prepayments towards your loan.
- Even small top-up payments help by reducing associated interest and shortening tenure.
- Check if prepayment attracts any charges and factor those in before paying extra.
Utilising spare funds to prepay is the fastest way to become debt-free.
9. Consolidate Multiple Loans
Instead of managing several loans together, consolidate them into a single loan for simplicity.
- Loan consolidation provides a single EMI encompassing different loans. Tenure and interest rates may also improve.
- This helps manage repayments better. But check for any applicable foreclosure charges on existing loans first.
Consolidation bundles loans into one, reducing repayment stress.
10. Maintain Financial Discipline
Handling loans calls for some wise money management and keeping tabs on your spending.
- Make a monthly money plan to get a clear picture of how much cash is coming in and going out for you.
- Avoid unnecessary purchases or investments during loan tenure to have surplus funds for prepayments.
- Curb expenses on entertainment, travel, etc., and postpone large outlays until debt-free.
Spending prudently is vital for timely loan repayment without defaulting on other financial commitments.
11. Use Balance Transfer in Case of Repayment Issues
If repayment stress builds up due to income delays or unexpected expenses:
- Consider a Personal Loan Balance Transfer to a lender offering lower interest rates. This can significantly reduce the interest burden.
- Alternatively, opt for an EMI moratorium or extension of the loan tenure from the lender. This provides temporary liquidity relief.
Balance transfers or moratoriums help tackle temporary cash crunch situations without defaulting.
Conclusion
Staying disciplined throughout the loan tenure by minimising expenditures, automating repayments, starting early payments, and avoiding further debts ensures you manage your loan effectively. The main goals while handling loans should be avoiding default, becoming debt-free quicker, and improving your credit score. Follow this step-by-step guide for a smooth loan management experience.