Repaying a Personal Loan


Most people usually consider taking a personal loan when some unforeseen expense needs to be met. As the amount required is generally not very significant, lenders do not require landed or movable assets as collateral and disburse the loan once an applicant submits documents such as his bank statement, residential proof and PAN card. But having taken a personal loan, a borrower must also understand the terms and conditions of repayment, because by not doing so, the loan could cost him more than what he intended. Nevertheless, a borrower can free himself of personal loans if he makes use of some options.

Asset monetization:

If a person possesses a number of assets such as a vehicle, landed property, life insurance policies, gold jewelry, fixed deposits or mutual funds, he can monetize them to settle his personal loan. Some banks charge lower rates of interest against assets which can be used to offset personal loans.

Debt consolidation:

This method allows a borrower to pay in lower installments each month over a longer tenure so that a bank can combine all the components of a borrower's debt portfolio into one package. Debt consolidation is particularly helpful if a borrower has taken more than one loan but has lesser monetary resources to settle his dues. This method provides the borrower with a built-in view of his credit worthiness. Though debt consolidation may prove to be expensive in the long run, it provides short-term relief to the borrower at a time when he may be short of funds.

Top up and secured loan:

With this loan option, a borrower can move to a lower cost credit by topping up on his existing loan. He can also negotiate with his lender to convert the existing loan into a secured loan by mortgaging his landed or movable assets such as his house or vehicle. The property, though, should be free from any debt or mortgage.

Personal loans attract high rates of interest and are always risky alternatives; hence it is better to assess other options before opting for such loans. Approaching the bank where an individual has a current or savings account for a loan could prove to be a much better option, as interest rates in banks are comparatively lower.



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