Numerous credit cardholders make the mistake of thinking of their credit cards as an extension of their income, resulting in them spending more than they can comfortably afford. As they continue to fall behind on their bill repayments, their outstanding debt increases at an alarming rate due to the higher rate of interest (which can reach as high as 49 percent) and the late payment fee. One of the most popular methods of getting out of a spiraling credit card debt is to take out a personal loan from a bank or other lending institution like fintech or NBFC.
Let us see how a personal loan can assist you in escaping the credit card debt trap.
Interest rates are at low ranges: Credit card interest rates are much higher than interest rates on personal loans, which is a considerable difference. While the interest rate on yes bank personal loan can range anywhere between 10.99 percent and 24 percent, the interest rate on credit card debt can go as high as 47 percent in some cases. The money saved as a result of lower interest rates might be used to accelerate the repayment of your accumulated debts.
It is less difficult to handle PL repayments: While credit cards also allow for the conversion of outstanding balances into EMIs, those who owe money on various cards will have multiple EMI schedules and due dates to keep track of all of their payments. Instead, taking out a personal loan to pay off various credit card debts will allow you to consolidate your debt into a single loan with a single interest rate, EMI, payment date, and loan duration. You can choose a tenure for a Personal loan ranging from one year to five years, depending on your ability to repay the loan. Also, you can check the yes bank loan status after submitting an application to remain up to date.
Things to consider when applying for yes bank personal loan to pay off your credit card debt
Credit score on the credit report: Because personal loans are unsecured, lenders may charge higher interest rates or reject personal loan applications from borrowers with poor credit histories. Given that credit cardholders who have accrued debt may already have a bad credit score as a result of missed repayments, their chances of obtaining a Personal loanat favourable interest rates, or even being approved for a loan, are significantly lowered.
It is also possible that conducting several direct loan inquiries with different lenders would do more harm than good because lenders will record such inquiries to credit agencies, which can lead to a reduction in the credit score for each inquiry. This will have a negative impact on your credit score as well as your loan eligibility.
It is preferable to explore online lending portals rather than directly applying to lenders in order to obtain the personal loan offers available without having your credit score negatively impacted. Also, like you remain updated about credit score through report checking, you can check yes bank loan status on the website to remain updated about its acceptance or rejection.
Loan Term: The personal loan is for a specific period of time and, of course, not endless. So, a significant factor in determining your EMI and overall interest cost is the length of time that your personal loan will be in effect, i.e. called tenure. Loans with longer tenures will have lower monthly payments but higher interest costs, whereas loans with shorter tenures will have higher monthly payments but lower interest costs.
Choosing a loan tenure that is appropriate for your repayment capabilities and anticipated future cash flows is recommended. Failure to adhere to an aggressive payback plan would result in increased borrowing expenses due to late payment penalties and other penalties, as well as a further descent into debt.
Interest rates for alternative lending options: Because the primary goal of taking out a personal loan to pay off credit card debt is to save money on interest payments, it is important to consider the interest rates charged on other alternative loan options, such as loan against property, top-up home loans, gold loans, and loan against securities, among other things. Because the majority of these alternative lending choices are secured in some way, their interest rates are likely to be lower than those available to you through yes bank personal loan. Some lenders may also offer lengthier loan terms, which will lower your monthly payment load. And do not forget to utilize the facility of yes bank loan status check, irrespective of the loan you choose to apply for. It is always best to remain updated about the application status.
Compare the interest rates of alternative loan possibilities charged by numerous lenders using online financial marketplaces to prevent having your credit scores negatively affected.
Charges for prepayment: Prepayment of a Personal loan, whether in part or in full, can help you save money on interest costs. Most lenders, on the other hand, penalize borrowers who prepay or foreclose on personal loans by charging them prepayment and foreclosure fees ranging from 2 percent to 5 percent of the outstanding loan principal.
What to do is as follows: If you want to pay off your personal loan early, look for a loan that does not charge a penalty for early repayment.
Returns on existing investments are as follows: Fixed-income and debt investment options such as FDs, debt funds, company deposits, non-convertible bonds, and other similar products offer lower rates of return than the interest rates charged on personal loans, according to the National Association of Securities Dealers. During times of heavy market activity, however, equity investments can generate better rates of return than the majority of interest rates on yes bank personal loans.
If your debt or fixed-income investments are not tied to your short-term financial objectives, consider redeeming them for the purpose of paying down credit card balances. It is important not to use your equity investments for unavoidable financial ambitions because doing so may compel you to take out expensive loans in the future. Also, refrain from using your emergency money, as unforeseen financial situations may require you to take out more expensive loans to cover your expenses. And even when you submit an application for a loan, do not forget the task of checking yes bank loan status.