Job loss, EMIs still due? A smart repayment plan for personal loan borrowers

A sudden and unexpected job loss can result in psychological stress. It can also derail the household finances. The situation can become even more difficult, especially when a personal loan EMI is due every month. That is why borrowers must develop a well-thought-out plan and respond promptly to meet the pending EMI obligations.

Amit Bansal, Founder, BharatLoan, says, “After a job loss, borrowers should first evaluate their financial runway by reviewing savings, severance, and essential expenses. This helps determine how long loan repayments can be sustained. Reaching out to lenders early is crucial, as many are open to restructuring options such as temporary moratoriums, extended tenures, or revised repayment schedules. Prioritising essentials, cutting discretionary spending and avoiding additional borrowing can prevent stress on cash flows and protect one’s credit profile while navigating the transition period.”

Take stock of the situation and stabilise cash flows

For this, you should:

1. Calculate your savings, emergency funds and severance pay. Carefully analyse your current liquidity to determine how many months of EMI you can easily cover.
2. Cut out leisurely expenses. Focus on unavoidable expenses, such as rent, utilities, and personal loan EMIs.
3. Create a clear, bare bones budget. Focus on mapping inflows and outflows weekly.

Engage lenders early and explore relief

To accomplish this, you should:

1. Contact your financial institution immediately.
2. Financial institutions are generally more accommodating towards restructuring repayments before a due date is missed.
3. Proactive communication is critical in navigating such a difficult situation.
4. Request for an EMI deferment, temporary interest-only payments or even tenure extension to reduce your monthly EMI burden.
5. You can also request a formal restructuring in case your job loss continues to persist.
6. Aim to avoid penalties and debt accumulation. Along with adverse reporting on your credit profile.

Rework repayment while rebuilding income

To accomplish this objective, you should follow the given steps diligently:

1. Focus on making partial prepayments whenever possible to gradually reduce the overall interest burden.
2. Consider a balance transfer to a lender with a lower interest rate, but carefully account for fees and eligibility requirements.
3. Try to boost income from freelancing, part-time work, or short-term commitments to meet EMI expenses.
4. In the worst case, pay even reduced EMIs on time, stay connected with your lending institution at all times to maintain credit trust and protect your future borrowing potential and credit score.

Important risk factors to watch out for

Personal loans come with several inherent risks. Some of the associated risks of personal loans are:

1. On a fundamental level, they are inherently unsecured.
2. They carry higher interest rates, making prolonged tenures costly and difficult to handle.
3. Missed EMIs attract penalties and result in aggressive recovery actions.
4. In extreme cases, borrowers may face serious legal repercussions.

In conclusion, restructuring can extend the repayment period. Thus increasing the total interest paid. That is why planning early, communicating clearly with lending institutions and replanning budgets accordingly are essentials to navigate a job loss without compounding financial risk.

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