Whether you wish to renovate your home, fund urgent monetary needs or go for business expansion or working capital funds, ICICI personal loan is often required to fulfil all such life goals and purposes. And quite naturally, most borrowers breathe a sigh of relief after going through the process of finding a suitable lender, getting the loan approved after qualifying for ICICI personal loan eligibility criterion and finally having the amount credited to their account. However, your task is not over yet. What impacts your financial future is how you handle the loan repayment.
So, here are some powerpoints to keep in mind during loan personal loan EMI repayments which will help you maintain strong financial health:
Avoid missing out or delaying your EMI payments
While servicing the loan, make sure you make it a habit to pay the EMIs timely. Disciplined and regular repayments of your EMIs and credit card bills reflect positively in your credit report, thereby enabling you to build as well as maintain a strong cibil score. The presence of a good credit score may assist in fetching lower interest rates on ICICI personal loans, along with better credit cards that offer higher benefits.
But on the flip side, any kind of delay in repayment is capable of pulling down your credit score, which would also hamper your future loan eligibility and loan approval chances, apart from the imposition of applicable penalties and fines. Moreover, missing debt repayments successively may result in lenders blacklisting you, and they may even label you as a defaulter.
Make prepayments whenever you have a surplus.
Making prepayment towards your ICICI personal loan, whether partially or in entirety, can lead to substantial savings in overall interest cost. While repaying your loan, try to prepay whenever you have additional funds, whether you receive the money by way of annual bonuses or maturing of investments. Although floating rate loans usually do not involve any prepayment charges due to RBI’s guidelines, lenders may levy such charges on fixed-rate loans. Therefore, before making any prepayment, make sure the savings in the overall interest payout outweigh the prepayment charges of the loan if any.
Additionally, evaluate the opportunity cost of not investing and instead of using the surplus funds for prepayment of the loan. Here the opportunity cost of not investing is the expected returns on investment which you would forgo by not investing and opting to prepay your loan. Also, make sure you sacrifice your long term investments earmarked for specific goals while attempting to make a prepayment of your loan.
Opt for balance transfer if feasible
During repayment of your existing ICICI personal loan, make sure you keep a tab on the loan terms and services being offered by other lenders. In case another lender is offering lower interest rates and better service terms for your existing loan, first request your existing lender to lower the interest rate and provide better services. If the lender refuses, then you should consider transferring your outstanding loan balance to the other lender. Opting for a balance transfer can lead to significant savings in the total interest payout.
However, since the new lender usually considers your balance transfer request as a fresh loan application, make sure you take into consideration the various costs that may be involved, such as processing fees, administrative costs etc. Go ahead only if the overall savings through loan balance transfer significantly outweigh such costs.
Additionally, remember that some lenders may offer a top-up facility on balance transfers of loans, as per your ICICI personal loan eligibility. While availing of the balance transfer option, you can consider opting for this top-up facility and utilize the top-up amount to prepay other existing loans, along with the overall reduction in your total interest payout as well.
Do not disturb your emergency fund.
Having an adequate emergency fund amounting to at least six times your mandatory monthly expenses assists in tackling financial exigencies such as sudden job loss or severe illness. While repaying your loan, avoid disturbing your emergency fund until and unless you are facing difficulty in paying your EMIs.
Moreover, when planning to make a prepayment of your ICICI personal loan and determining the amount you have as surplus to prepay, make sure that you don’t exhaust your finances and are adequately left with enough savings to maintain liquidity. Also, remember to never disturb your emergency fund, and it continues to remain at the level of at least six times your mandatory monthly expenses.
Assess your FOIR before availing of another loan
In case you are eligible to take another loan as per your ICICI personal loan eligibility
, besides repaying the existing one, do not overlook your FOIR before going ahead. FOIR, which is fixed obligation to income ratio, is the proportion of your income being spent on debt repayments, such as loan EMIs and credit card bills. As a higher FOIR indicates that a major portion of your income is going out on debt repayments, which implies a higher likelihood of defaulting in future, lenders may hesitate in lending to applicants possessing a higher FOIR.
Before finally applying for a loan whose ICICI personal loan eligibility criterion you are able to fulfil and qualify for, make sure your FOIR, after taking into consideration the new loan’s EMI, does not breach the 40-50% mark. If it does, then consider repaying your existing loans first, preferably the costliest ones such as personal loans or outstanding credit card bills.
Remember, taking a personal loan affects your current as well as future financial position until its repayment gets completed. And personal loans are a common option opted by many borrowers as there is no boundation on its end usage; they are quickly disbursed and do not require collateral, security or margin. But that does not imply that you become careless towards its application and repayment.
Even when applying for it, although you can get most of the information regarding the personal loan online itself on the lender’s website, do not fail to pay attention to some minute details while applying for your ICICI personal loan, as this can lead to financial problems after you have taken the loan. So ensure to read the fine print as well and then apply when you are fully aware of all the relevant details, fees, processes, features etc.