The importance of paying your loan EMIs on time

A personal loan is a smart option for your urgent financial needs, but it is also important to plan your finances according to your loan amount and interest amount to make sure that you pay your monthly loan installments on time. When you deal with high-interest-rate loans, paying back your loan becomes a challenge. In this article, let’s discuss how and why you should pay your loan EMIs on time.

Avoid late payment penalties

Paying your loan EMIs on time is important to avoid late payment penalties on your loan. The unwanted charges in the name of penalties add up to a large amount, reducing your loan repayment capacity.

Protect your credit score

Your loan repayment history has a great impact on your credit score. To maintain a decent credit score, you must make on-time loan payments on a monthly basis without missing out on a single installment.

Avoid legal action

If you regularly miss your loan payments, then you may attract undesirable legal action. Your lender may initiate legal action against you to recover the outstanding debt. Pay your loans on time to avoid such undesirable consequences.

Additional monthly payments

Make additional monthly payments whenever you have extra cash in your bank account. This additional payment will help you reduce your loan’s principal balance. Over a period of time, you can see your principal loan amount getting reduced. Analyze whether you are capable of making extra payments monthly. If you cannot do it immediately, try to gradually increase your monthly payment amount. Instead of making one monthly payment, you can make payments once in two weeks. To set up biweekly payment plan for your loan, you must contact your lender and make the necessary arrangements for paying monthly installments on a biweekly basis. Make sure your lender does not charge additional fee for this service.

If you receive money in bulk through bonus from your employer or tax refund or extra money through any other means, you can utilize this money to make a lump-sum payment on your loan. By doing this you can bring down your loan balance. By reducing the loan balance and time needed to pay back your loan, you can get rid of your loan burden very soon.

Refinancing your loan

Refinancing is a better option if you are stuck with a loan with a higher interest rate. In refinancing, you take a loan with lower interest rate and use the loan amount to pay off your existing loan with higher interest rate. To avail refinance, you need to search the lender with the best rates and terms. While you opt for refinancing, you have to be very careful in selecting the loan scheme. So, compare loan schemes from best lenders and choose the best scheme that suits your cash flow.