How to avoid defaulting on loans

How to avoid defaulting on loans

Default is said to occur when a person fails to make timely payment of a loan after a pre-defined time period. For most of the Direct Loans, the time period for the payment is set to be 270 days in case you pay in monthly installments. If in case you pay in a lesser frequency than monthly installments, then the time period may be around 330 days or so. Having a default on loans means violation of the loan agreement. This gives the liberty to the lender to demand for the full payment at once.

Defaulting on your loans means having a long-lasting and negative effect on your financial life for the future. These problems can be avoided by planning in advance for the repayment of the loan amount.

You should be well aware about your responsibilities as well as rights in relation to the repayment commitment, along with your various repayment options. Let me give you an example. If you are taking a student loan, you should get a loan for only the amount that you need, and for which you expect to be able to pay conveniently. Always keep all the records relating to your loans intact. Keep copies of all correspondence, letters, cancelled checks, and any other concerned document.

Always keep in mind to notify the lender in case there is a change in your address or phone number. If you face any kind of difficulty while maintaining your loan repayment, you must contact the bank immediately so that you do not end up with a default due to any probable reasons. Discuss the loan terms with your lender.

Another important thing that is required to avoid defaulting on loans is to maintain a monthly budget with all your income and expenditure details. This will help you to keep track of all the payments that you need to make.

However, in case you are facing a problem in making loan payments, you can have them delayed through certain provision known as forbearance and deferment. Deferment actually means postponing the loan payment. During this time, the interest rate does not grow when the loan is subsidized. In case you are unable to make payments due to unforeseen issues such as poor health or personal problems, you can ask for forbearance of the payments. During this time, you can choose to make either no payments or payments in smaller amounts than the ones that were schedules originally. Forbearance can be requested for interest, principal or both.

Even after trying to avoid, if you do end up with a default on your loans, don’t wait until you miss three or four payments to look for a solution. Explain to your lender about the exact situation that led to the delinquency. Cooperate with your lender and find out the perfect solution that works best for both of you. The probable solution could be anything from extending the time period of repayment to suspending the payment for some time, or something else.

So, it always recommended to avoid defaulting under all circumstance in order to keep your financial status secure.

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