What Is loan repayment and why is it important?

Whenever an individual tends to take quick loans on an emergency basis, they are committed to repaying the principal amount and a certain interest rate. The lender offers these financial products as either secured or unsecured.

In the case of secured loans, the borrowers need to pledge a kind of collateral for getting quick loans. But in the case of an unsecured loan, you need not have offered any collateral. The loan repayment happens to be a process of paying back the borrower’s money from the lender.

The repayment takes place through a certain series of scheduled payments, commonly known as equated monthly instalments. This instalment includes both the interest amount and the principal amount.

How does it work?

For instance, if you take an Rs. 2000000 loan with an EMI of Rs. 26430, the total payable interest would be Rs. 1171618. In this case, the loan repayment amount would be Rs. 3171618.

You can also take the help of the amortization table that you can get from your financial institution. It can help you to calculate the loan repayment amount with interest amount using the EMI calculator.

Why is it important?

Loan repayments happen to be one of the important aspects that the borrower needs to consider. You must take it very seriously as it reduces the liability of your loan amount. Besides, it also reflects a good credit history. The immediate financial application can somehow reflect the missed payments or failed payments. It somehow has a long-term implication on the credit health of the borrower.

Improve your credit health with loan repayment

Irregular repayment adversely affects the credit health of the borrower. Moreover, timely repayments can provide a chance that helps to build a good credit history. It also helps to improve ailing credit health. Suppose you take the loan repayment lightly. It can cause unnecessary complications. If you want to have a good credit history, you need to improve your credit score. To improve your credit score, you need to make future repayments regularly.

Moreover, you can choose various loan repayment methods. These are:

• Equated monthly installments

One needs to pay this every month. It involves a part of interest along with a part of the principal amount. Some banks allow their borrowers to pay the principal amount of the loan only after paying a certain number of instalments. One can make this free payment in two ways. The partial payment helps to reduce the principal while saving money on interest. At the same time, the pre-closure is where you pay off the entire loan amount before the loan tenure.

• Bullet repayment

In case of bullet repayment, the body needs to pay the interest amount every single month. However, you need to make a bullet repayment to pay the entire principal loan when the tenure ends.

Moreover, you should take care of your credit health as it reminds the amount of loan interest rate of an individual. A positive payment history always indicates that you have never made any instalments. If you have any unfavourable repayment history, then it makes you want to be a risky customer for any financial institution. In return, the officials can deny your loan, or you would be charged a higher interest rate.