The Covid-19 pandemic has caused millions of people to lose their jobs or have their incomes reduced to a fraction of what they once were. While the most banks have looked at ways to help their borrowers repay their loans more easily, a large number of individuals have found themselves unable to pay for their basic monthly expenses let alone their loan repayments.
This may not be a serious issue in the case of small loans that have low-interest rates, missing monthly payments on mortgages, secured personal loans, and credit card debts can wreak havoc with one’s credit rating. In some cases, this may even lead to individuals losing possession of their homes in favour of the lender.
As dire as the situation may seem, it is important to keep in mind that there are things that can be done to find more accessible ways to repay your loans, and even to avoid the consequences of missing a couple of monthly repayments. Here is what you should do if you cannot make your loan repayments on time:
1. Talk to a Bank Representative and Explain the Situation
The first thing that you should do is to inform the lender that you may no longer be able to make the monthly payments on time. If your income has been reduced as a result of the ongoing pandemic, there is a big chance that you may be eligible for governmental help or enrollment in a special repayment program.
It is in the interest of most lenders to ensure that they get their money back, as taking possession of the borrower’s property would bring about additional expenses for them. As a result, they will agree to work with the borrowers to find a mutually advantageous solution.
2. Consider Refinancing the Loan
If you have already repaid a considerable portion of the money, refinancing the loan may be a great option. This course of action will allow you to both extend the loan, as well as get a lower interest rate, both of which will work towards setting smaller monthly repayments. While it will not eliminate the necessity of making the payments, it can make them more manageable.
One thing to keep in mind here is that, depending on your relationship with the lender, you may be required to provide the bank with collateral. If this happens, look at what help the government is offering. You may be eligible for a state-guaranteed loan, allowing the government to act as a guarantor in your loan application.
3. Apply for a Debt Consolidation Loan and Have It Cosigned
If you have several forms of debt that need to be repaid, a debt consolidation loan may be the perfect tool to reduce the cost of all your loans. These are usually large enough to cover both loans as well as credit card debt and have relatively long terms and low-interest rates.
The downside is that they must be secured against the borrower’s property. In other words, if you cannot make the monthly payments on a debt consolidation loan, the lender will be entitled to take possession of your property. However, this danger may be mitigated by finding a family member or a close friend to cosign the loan. This will ensure that if you are unable to make one or more payments, the cosigner will be able to take them over until you get back on your feet.
These are the three most reliable strategies to manage debt that you can longer repay. While they are effective and relatively easy to implement, they will not make the debt go away.