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Rediff.com  » Getahead » Can't repay your loans? Here's help

Can't repay your loans? Here's help

By Bhupendra Achari
February 18, 2009 15:54 IST
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With young people taking loans and using credit cards to buy things in India debt problems have become commonplace. While the problem existed even before the economic recession made its presence felt it has become all the more acute with companies sacking employees to beat recessionary blues who in turn do not have enough money to repay their loan EMIs (equated monthly installments).

Every year, lenders declare a large number of borrowers as defaulters as they fail to make their loan repayments.

Debt problem arises when you are unable to meet your loan obligations. In order to have a better standard of living, people borrow money from banks indiscriminately. Many a times, they are not sure how they will repay their loans. They realise this only when they come very close to become a loan defaulter.

The problem becomes even more serious when the borrower finds it difficult to repay a secured loan (a loan that is borrowed against a collateral; home loan for instance). In this case, s/he runs the risk of losing her/his property. To avoid their property being taken over by the lender people tend to take personal loans at higher interest rates to repay existing EMIs.

While debt consolidation does not liberate you from your debt obligations it merely makes it easier for you to pay your unpaid loan balance and credit card dues. The main idea behind debt consolidation is to replace all your loan obligations with a new one.

For instance if you have taken a home loan or a mortgage loan say a year or two back and after that you have taken unsecured loans (personal loans) from various banks and there are some dues pending on your credit card then you can consolidate all these loans into one loan by transferring it to one particular lender (bank) and pay only one EMI rather than multiple EMIs.

Normally lenders will take over all your existing liabilities and will convert them into one single-loan EMI. This gives the borrower some breathing space as the immediate threat to her/his solvency (selling off of the property by the lender) decreases. Moreover, it becomes easier for the borrower to manage a single loan instead of keeping a track of multiple loans.

Anyone who has multiple sources of debt could possibly benefit from debt consolidation, especially if some of that debt is from credit cards. There are a variety of debt consolidation services available, but the general idea is to replace multiple sources of debt with a single debt consolidation loan.

At the very least this will simplify your life, and can also save you money by lowering the interest rate on your debts, and/or make monthly payments more manageable by spreading debt out over a longer time.

However, you may face severe consequences if you do not consolidate your loans which you are not being able to repay. If this happens you may lose your property in case your loan is secured against the property.

In case of an unsecured loan also, the lender may initiate legal proceedings against you. You may even be declared defaulter. Once you are declared a defaulter you will not be able to get a new loan for many years from lenders as the latter favour only those borrowers with clean credit history and repayment record. The best choice in such a situation is for you to go for a debt consolidation loan.

Who can help you consolidate your debt?

Bank of India's Abhay (http://www.bankofindia.com/abhay.aspx) and ICICI Bank's Disha (http://dishafc.org/) have taken the lead in setting up centres those counsel borrowers facing problems with their loan repayment and offer credit counseling and debt management advice.

Both these organisations are engaged in creating awareness about financial management and helping borrowers struggling to meet their repayment obligations in a friendly manner.

Easyfinance.in provides information on home loans, car loans, personal loans, education loans, and term loans & project loan in India.

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Bhupendra Achari