Missing a payment due to hardship isn’t unusual, but staying silent can worsen your situation. Proactively contacting your lender opens doors to options.
Mumbai: With rising access to credit and growing financial aspirations, more Indians than ever are relying on loans to fund everything from education to emergencies. But while taking a loan is often a strategic step, repaying it efficiently is where many borrowers stumble. From missed EMIs to poor budgeting and lack of communication, even well-meaning individuals can fall into traps that prolong debt and harm their credit health.
Here are five key pitfalls borrowers often face, and the proactive steps that can lead to faster, stress-free debt repayment.
Failing To Budget And Plan Your Repayments: According to Kundan Shahi, founder of loan repayment and credit awareness platform Zavo, jumping into repayment without a clear budget or plan is a recipe for trouble.
“If you don’t map out your income and expenses, you may run short of funds for your EMIs. To avoid this, create a realistic monthly budget that prioritises loan payments. For example, the 50-30-20 rule can help allocate 50 per cent of income to essentials, 30 per cent to wants, and 20 per cent to savings and debt repayments. By planning and tracking every rupee, you’ll ensure there’s enough set aside for EMIs and reduce the risk of default,” Shahi said.
Missing Or Delaying EMI Payments: Some borrowers underestimate the damage of paying late. Even one missed EMI can lead to hefty late fees and a dip in your credit. Skipping or delaying payments not only racks up penalties but also hurts your creditworthiness, making future loans more expensive. To avoid this mistake, set up auto-debits or calendar reminders so you never forget a due date. If you foresee a problem in paying a particular month, communicate with your lender in advance; they might offer a solution.
Taking On New Debt to Repay Old Loans: Using a new loan to clear an old one often leads to a debt spiral. An RBI survey found that 27 per cent of borrowers were borrowing just to repay existing dues. Swiping one credit card to pay another or taking a quick personal loan for an EMI may offer short-term relief, but adds more EMIs and interest. Instead, cut non-essential expenses and explore solutions like loan restructuring with your current lender. “Only consider a new loan if it truly reduces your overall interest, such as a consolidation loan with better terms. Avoid digging deeper until your finances are stable,” he said.
Ignoring Opportunities To Reduce Interest: Many borrowers never revisit their loan terms, missing chances to lower interest costs. But interest rates change, and lenders often offer better deals to new or creditworthy borrowers. “A 1 per cent drop on a Rs 50 lakh loan can save lakhs. Consider balance transfers or refinancing, especially if you have a solid repayment record. Even consolidating multiple loans into one can reduce your EMI load. Always check for processing or prepayment charges, but in most cases, the long-term savings are worth it. Review your loan annually and act on better opportunities,” the Zavo founder said.
Avoiding Communication During Financial Stress: Missing a payment due to hardship isn’t unusual, but staying silent can worsen your situation. Proactively contacting your lender opens doors to options like EMI deferments, tenure extensions, or restructuring without damaging your credit score. During COVID-19, over 50 lakh borrowers benefited from the RBI moratorium simply by reaching out. Financial planning also means being responsive during tough times, revisiting your budget, cutting non-essentials, and having a plan for income dips. Honest communication is key to managing debt wisely.
