Question

4. If you have ever missed a repayment deadline, what was the result? What could you have done differently/better?

5. Are you concerned that the major national credit bureaus may have files containing information about you? What do you think about the process required to correct errors in those files?

Chapter 7

2. If you wanted to borrow money to study abroad for a semester and could pay it back within two years after returning, would you prefer a single-payment loan, an installment loan, or a cash advance on a credit card? Why?

4. If you were the borrower, how would you feel about the fact that interest costs are higher in the early months of a declining- balance loan than they are in the later months?

Answer 1

1. It is very important to pay your EMIs as per the schedule set by the lender in confirmation with the borrower. Missing on payment of loan installment can have many negative such as:

a) impact the credit score of the borrower: financial institution maintain credit history of each borrower and share the same with Bureau’s or credit rating agencies. If there is a negative comment in your report it is not a welcome sign. This can lead to cut in your credit score and you can be classified as a riskier borrower because of which you can face challenges in future like less likely that your loans will be approved or you may need to pay more Intrest than other borrowers. To what extent it affects your score is dependent on the repayment track record. The more payments you have missed in the past, the more your score gets hurt.

b) Late fees and penalties: Lender can penalty for delay in payment which could be more than current Intrest rate also they can reset new Intrest rate for rest of the payment term which could have more burden on your pocket. So whatever you do, never delay your payment.

c) loss of collateral: in case of continuing default in the payment you are at a risk to lose your collateral provided at the time of taking a loan as lender has legal right over it to claim its loss.

5.  One should not have any apprehensions about Credit Bureau or agencies collect their details. These agencies only collect details related to credit taken and repayment of the same by individuals and commercial entities.
These records are submitted by lenders on a monthly basis which is used to determine the Credit Score of a borrower. These agencies work as per guideline of Central Banks and it is good to have details of the habit of the borrower in an economy as it helps in making a policy decision. Till the time you don’t default there is nothing to worry. These reports are available at nominal cost and in case of any discrepancies in data, you can always write to these agencies which then share your concerns with the data provider and any errors post confirmation by the lender are correct within a prescribed time frame.

CHAPTER 7

2.  It is always better to make a single payment of borrowed money as lender charge Intrest in lieu of money than lend and higher the term of the loan you are likely to pay more. Also when you make payment in terms of EMI most portion of installment went to cover Intrest portion and a very small amount is adjusted against outstanding principal banks do this to cover their cost or risk of lending. Also, if you are taking an advance against credit card then you are likely to be charged more Intrest when compared with traditional loans along with it there is minimum lock-in period before which you can not repay your loans and they charge a penalty for prepayments so it is always better to pay borrowed money as soon as possible.

4. Banks cover their risk of lending by charging Intrest as per customer profile. In the case of monthly EMI Banks always adjust major portion against Intrest and a very small amount is adjusted against the principal. This is done because if the customer wants to prepay by that time they earn the majority of Intrest they charged over the life of the loan. On borrower part, this is not fair as it puts additional burden as whenever they want to prepay they are not benefited from it. Customer almost pays double of the borrowed money because of this practice as most of their installment is adjust toward principal at the latter stage of the loan tenure.