HomeMedia CenterDefaulted on a loan? Here’s how you can avoid getting into a debt trap

Defaulted on a loan? Here’s how you can avoid getting into a debt trap

  • According to Bhavin Patel, founder and CEO, LenDenClub, an individual is to default on his or her loan at least once in life.
  • In banking, commercial loans are considered defaulted if the debtor has made zero payments of interest or principal within 90 days.
  • A loan default occurs when a borrower is not able to pay the EMI amount with interest to the financial institution as per the loan agreement.

Getting out of a debt trap is not an easy task, especially when you have defaulted on a bank loan. A loan default occurs when a borrower is not able to pay the EMI amount with interest to the financial institution as per the loan agreement. In banking, commercial loans are considered defaulted if the debtor has made zero payments of interest or principal within 90 days, or is 90 days past due.

According to Bhavin Patel, founder and CEO, LenDenClub, an individual is to default on his or her loan at least once in life. “However, that needs to be improved quickly for better prospects towards future loan requirements,” he says.

Here are the options one can consider in order to avoid a debt trap, as suggested by experts:

Debt consolidation

In case of a loan default, the borrower can opt for debt consolidation.

“This is one of the best ways to get out of a debt trap. The borrower should look for a new, low-cost personal loan and pay off his current pending debts. By consolidating the debt, the borrower is combining multiple debts into a single debt. It allows them to opt for a favorable payoff term with a lower rate of interest and EMIs,” suggested Ketan Patel, CEO, Cashe.

Creating a budget

It is also important to create a budget and stick with it. The defaulter should avoid unnecessary expenses, be it big or small until he/she is not in a financially comfortable position.

“This includes reducing the usage of credit cards too. Use credit cards wisely because that may end up incurring high-interest rates and penalties for not paying it on time,” Patel said.

Informing the lender

If the borrower is about to default on the loan due to some adverse circumstances, he must inform the lender about the reason that has made him unable to pay the EMIs.

“Convince the lender about the intent of paying back the loan as soon as possible. For this, one can share the past documents of EMI payments for the loan or the previous loans that have been cleared,” explained Gaurav Chopra, CEO, and founder, IndiaLends.

According to Jonathan Bill, CEO & Co-Founder, CreditMate — a Paytm-backed fintech start-up, the borrower can also ask the lender if the duration of the loan can be extended. “In this case, the borrower can pay smaller EMIs. However, the total interest pay-out will go up,” he said.

Liquidating the investments

To unburden from an outstanding loan, borrowers can opt for liquidating the underperforming or non-performing investments. This will help them in substantially saving the interest mounting upon such loans, according to experts.

Credit: https://www.cnbctv18.com/personal-finance/how-to-avoid-the-debt-trap-in-case-of-a-loan-default-steps-tips-5104451.htm

LenDenClub is India’s largest alternate investment platform which started operations in India in 2015. We have been helping investors diversify their investments beyond traditional investment instruments ever since.

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The Reserve Bank of India does not accept any responsibility for the correctness of any of the statements or representations made or opinions expressed by Innofin Solutions Private Limited, and does not provide any assurance for repayment of the loans lent through its platform.

LenDenClub is an Intermediary under the provisions of the Information Technology Act, 2000 and virtually connects lenders and borrowers through its electronic platform via the website and/or mobile app.

The lending transaction is purely between lenders and borrowers at their own discretion, and LenDenClub does not assure loan fulfilment and/or investment returns. Also, the information provided on the platform is verified or checked on the best efforts basis without guaranteeing any accuracy of the data/information verification. Any investment decision taken by a lender on the basis of this information is at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower, fully or partially. The risk is entirely on the lender. LenDenClub will not be responsible for the full or partial loss of the principal and/or interest of lenders’ investment amounts.

*This is an annualized yield and is subject to the maximum FMPP tenure, which is 5 years. P2P investment is subject to high risk and may cause an entire loss of principal.
 

*P2P investment is subject to risks. And investment decisions taken by a lender on the basis of this information are at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower.

** Average value mentioned is the weighted average of returns received by investors

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