Tips to lower your EMIs in case of cash crunch

Job layoff, medical crisis or any unforeseen emergency tends to scuttle our budget. In this case, it can play havoc with our monthly installments of our loans. This can be particularly disastrous if the loan is home loan, as it can lead to loss of your home. So if you are in this situation, or credit card debt, which can easily spiral out of control; here are some tips to beat the cash crunch.

  • Sell off some of your assets.
  • Pay part amount of the total EMI to lower the interest due.
  • In case of a credit card debt, convert it into a personal loan due to its lower rate of interest.
  • Avail of loans against assets like FDs, gold and shares and property.
  • But if all these fail, the last option is to seek help from the debt counseling centers or approach the bank directly. Most banks are willing to help out customers in distress to recover at least a portion of their dues.

Effect of base rate on home loans

With effect from 1st July 2010, base rate system has set in. Base rate has replaced old system of benchmark prime lending rate (BPLR). The problem with BPLR was that banks lent money to large corporates at rates lower than BPLR. This meant large corporates got money cheaply, while others had to pay interest at rates over BPLR. RBI has introduced base rate with the aim of introducing transparency in the lending system.

So how will you as a home loan borrower be affected? It is likely the home loans will go up. This is because banks won’t be permitted to lend below base rate. Now home loans are very competitive and banks have been lowering their interest rates to attract more customers. Now all that is slated to stop. So you will end up having to pay more.

Why Gold loan?

Looking for a loan with low rate of interest? Then opt for gold loan offered by banks against the gold jewelry. The bank uses your jewelry as collateral and will lend you money against it.

Why gold loan?

The interest rates charged on this loan are at least 5-8% cheaper than the personal loan. Also unlike a personal loan, a gold loan does not have any elaborate documentation so the loan processing time is shorter. Also you can avail of this loan even if your credit record is poor. You just have to show your income proof to avail of the loan.

Why avoid gold loan?

 

If you are taking a loan from a cooperative lender, then you must be a member of the bank. Also some smaller banks may not return your ornaments, so you stand to lose your jewelry. If you have taken a loan from a particular branch and defaulted on it, then the branch may not return your ornaments. So in this case, it is advisable to approach another branch of the same bank or another bank altogether.

Also the tenure of the gold loan will vary from bank to bank. In case of HDFC Bank, the tenure is annual while it is monthly in case of Mannapuram Finance. The benefit of of monthly tenure is that you can get higher amount with every rise in gold prices.

Tips to free yourself from debt

Today debt is becoming common place all over the world. Even in India that originally boasted about having the highest savings rate in the world, debt is slowly spreading its tentacles. Many people, especially youngsters fall prey to the easy availability of the credit. If you are in this position, then here are some tips to get out of your debt.

  • Inform your spouse/parents: This is the biggest mistake many people make. They hide their debt situation from their near and dear ones. Don’t do that. Discussing your financial problem with them will help you solve your debt problem.
  • Draw a repayment plan: Chalk out a plan to repay your debt. Cut down on unnecessary expenses like shopping for latest gizmos, eating out at a restaurant or going to movies at a multiplex. Use the amount saved to pay off your debt.
  • Switch over to low-cost loans: Replace the loans with high interest like credit card debt and personal loan to low-cost loans like loans against securities, NSC, KVP and mutual funds. It will save you the money by reducing your interest costs.
  • Opt for one time settlement: Many banks would prefer settling outstanding dues with their creditors. They will try to offer you a settlement as they would be happy recovering even a part of their dues, instead of letting the entire sum go down the drain. If you get such an offer, opt for it. But ensure the bank gives you a settlement letter and declare the account closed.
  • Restructure the loan: Banks let you restructure the loan,  in such a way that you pay higher EMIs when your financial condition improves. Write a letter asking the bank to offer you this facility.
  • Declare bankruptcy: This should be your last resort and should be used when everything else fails. Approach the bank and declare your inability to pay and also tell them you don’t have any assets. The bank will then take up the matter with the court, who will then attach your assets like property. Then it will commence the liquidation procedure to pay the bank. It is a complex process that can last for 3 years.
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