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How to Repay a Personal Loan When Faced With a Job Loss

How to Repay a Personal Loan When Faced With a Job Loss

Job losses can be disturbing. The situation worsens if one is already burdened with loans, especially unsecured ones like personal loans. Personal loans can be a useful financial tool to meet various needs, from funding emergencies to consolidating debt. However, when faced with unemployment, repaying a personal loan can become challenging. In such a situation, it becomes imperative to consider different personal loan repayment options.

However, it is only a temporary situation, and it is important to take proactive steps and explore available options to manage loan repayments effectively. Even though it is stressful to think about paying off a loan, it is time to act smartly and figure out ways to deal with the situation. Here are ten strategies to repay a personal loan when faced with a job loss.

Tips to Repay Personal Loans When Unemployed

Here are some of the best tips to consider when repaying a personal loan when unemployed:

1. Inform the Lender:

What happens if a personal loan is not paid? The lender is well within their rights to take legal action when a certain number of days have passed. Hence, informing the lender about the change in employment status is the first step. This will help establish open communication and potentially lead to finding a mutually beneficial solution.

Lenders may have specific policies or assistance programs for borrowers facing financial difficulties. Informing the lender will open the doors for these policies and programs that can come as a great relief to one’s current situation.

2. Explore Loan Restructuring:

Loan restructuring means revising the existing terms and conditions of the loan. Discuss the possibility of loan restructuring with one’s lender. This could involve extending the loan tenure or reducing the monthly instalments to make them more manageable.

Restructuring can provide temporary relief and enable one to continue making regular payments until a new job is secured. This will ensure that EMI payments are not skipped, as CIBIL scores automatically lower when one doesn’t pay personal loan EMIs.

3. Review the Loan Agreement:

Carefully review the terms and conditions of the loan agreement. Look for any provisions related to job loss or financial hardships. Some agreements may offer provisions for temporary suspension of payments or reduced interest rates during challenging periods.

Become familiar with these options and explore if they apply to one’s situation. If any term or condition seems helpful, contact the lender to benefit from such terms.

4. Prioritise Debts and Consider EMI Deferment:

Hardships can increase with the stress of multiple loan repayment obligations. Repaying all the loans can be utterly difficult when one’s income has dived. In case of multiple loans or EMIs to repay, prioritise them based on urgency and interest rates. Contact each lender individually and explain the circumstances. In some cases, lenders may allow payments to be deferred temporarily or may provide alternative repayment options.

5. Liquidate Investments:

This should be considered as a last resort. If repayment is impossible by alternate means, consider liquidating non-essential investments to generate funds for loan repayments. Evaluate the portfolio and identify assets that can be easily converted into cash without incurring significant losses. However, it is advantageous to consult a financial advisor before making any major decisions to ensure one makes informed choices.

6. Review the Monthly Budget:

Revisit the budget for monthly expenditures and identify areas where expenses can be reduced. Trim unnecessary expenses such as dining out, entertainment subscriptions or luxury purchases. Redirect the saved funds toward loan repayments.

Additionally, explore ways to increase the monthly income. This can include freelancing or part-time work that will help bridge the financial gap. The extra income earned can be re-routed to repay the personal loan EMIs. This will also guarantee that one’s finances are not stretched too thin.

7. Explore Schemes of Financial Assistance:

Research government or non-profit schemes that provide financial assistance to individuals facing unemployment or financial hardship. These programs may offer temporary relief through grants, low-interest loans or job placement services. Explore all available options to alleviate the financial burden.

8. Seek Help from a Financial Advisor:

A financial advisor can provide valuable guidance on managing one’s finances when unemployed. They can help create a personalised repayment plan, explore alternative options and provide insights on debt management strategies. A financial advisor can also assist in navigating complex financial matters and making market-informed decisions.

9. Consider Balance Transfer:

A balance transfer involves transferring an outstanding loan balance to a new lender. For people with good credit scores, consider transferring the personal loan balance to a new lender offering lower interest rates and better terms. This will help reduce their monthly payments and overall interest burden, making it easier to manage their loan repayments during unemployment.

10. Avail Loans Against Assets:

Explore the option of availing loans against assets. This can include gold loans or loans against fixed deposits. These loans typically require only interest payments and not EMIs, providing temporary relief until the restoration of financial stability. However, carefully consider the terms and repayment obligations associated with such loans.

Also, read – What is Outstanding Loan Amount

What Happens If You Cannot Pay Your Personal Loan EMI?

If you are unable to pay personal loan EMI due to job loss, you may face the following consequences:

1. Credit Score Drop

When you miss an EMI, the lender reports it to the credit bureaus. This hurts your CIBIL score and reduces your future loan eligibility, which is one of the major personal loan default consequences. The impact of not paying personal loan EMI is serious because lenders start seeing you as a risky borrower.

2. Extra Charges

The lender will also levy late fees or penalty interest along with your EMI. On top of this, they may even mark your account as a default, leading to extra recovery costs.

3. Legal Action

What happens if you cannot pay a personal loan for an extended period? In such extreme cases, the lender can even take legal action against you.

Protecting Your CIBIL Score During Financial Hardship

Follow these tips to protect your CIBIL score if you are unable to pay personal loan EMI due to job loss:

1. Talk to Your Lender

If you have lost your job and are unable to pay your personal loan, inform your lender early. This helps protect your CIBIL score during job loss because lenders may offer temporary support instead of marking your payments as overdue.

2. Check Your Loan Terms

Read your loan agreement to understand penalties, grace periods, and any credit shield coverage that can help you maintain your credit score during unemployment.

3. Ask About Restructuring

Some lenders offer loan restructuring, which reduces or pauses your EMIs. This can limit the impact of job loss on CIBIL.

4. Use Savings or Investments

If you have enough savings or investments, consider liquidating them to avoid overdue EMIs. This will prevent the interest and penalties from adding up.

Alternatives to Personal Loan Repayment When Unemployed

You can explore the following alternatives if you have lost your job and are unable to pay your personal loan:

  • Government Schemes: Explore government schemes that offer financial help, job training, or placement support. These can reduce the pressure when exploring alternatives to personal loan repayment.
  • Loan Restructuring: Talk to your lender about changing your loan terms. A longer tenure or lower EMI can help during tough times.
  • Loan Moratorium: A moratorium lets you pause EMIs for a short period. Lenders approve it based on your history and need.
  • Balance Transfer: If you have a strong CIBIL score, moving your loan to another lender may reduce interest and EMIs.
  • Loans Against Assets: Getting a secured loan against property or fixed deposits can provide temporary relief while you regain income.

Conclusion

Job loss can create financial stress, especially when one has personal loans to repay. By adopting proactive measures and exploring available options, one can effectively manage loan repayments during this challenging period. Navigate through this difficult phase and successfully repay one’s personal loan by implementing the above steps and considering personal loan repayment options.
Avoid unnecessary stress by selecting the right lender at the time of availing a personal loan. TATA Capital is one of the most preferred lenders for personal loans. With affordable interest rates, flexible repayment terms, and quick disbursal, the TATA Capital personal loan app provides some of the best terms for personal loans. It also extends personal loans for the unemployed based on the satisfaction of certain criteria.

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FAQs

What should I do immediately if I cannot pay my personal loan due to job loss?

 

If you are unable to pay the personal loan due to job loss, you should inform the lender immediately. They might agree to an EMI reduction, restructuring, or a temporary moratorium. This can prevent penalties and protect your credit score.

Will job loss directly impact my CIBIL score if I miss personal loan EMIs?

 

Job loss itself doesn't affect your CIBIL score. But missing your loan EMIs will. If your payments are delayed, lenders report it as overdue, which lowers your score. You can lower the impact by paying on time or informing the lender early.

Can I get a temporary moratorium or EMI deferment for my personal loan after losing my job?

 

Yes, you can request a moratorium or EMI deferment after losing your job. But the approval depends on the lender's policies, your payment history, and your financial situation. Remember, a loan moratorium can pause payments temporarily but may increase your overall interest.

What are the consequences of defaulting on a personal loan in India?

 

Defaulting on a personal loan can lower your credit score, add penalty charges, and lead to legal notices. In severe cases, the lender may also take legal action, making it harder for you to get loans in the future.

Are there any government schemes or assistance for personal loan borrowers who lost their jobs?

 

Yes, some government schemes provide financial support, skill training, or employment assistance. They don't directly repay personal loans, but can help you manage expenses while you get back on your feet. But the eligibility for these schemes depends on your income and background.

How can I restructure my personal loan to make repayments affordable after job loss?

 

You can inform your lender about the job loss and request restructuring. They may extend your tenure, reduce EMI amounts, or revise the terms. However, this depends on your repayment history and current financial situation.

Should I use my savings or liquidate investments to pay personal loan EMIs during unemployment?

 

If the financial pressure is high, you can use your savings or liquidate investments to avoid penalties and credit score damage. Make sure to review all available options carefully to find the most suitable strategy.

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