The need of money can occur at any point in time. It is always unprecedented and you cannot be prepared to tackle it. There are many people who try to make a contingency fund to tackle this problem. This however not always go as planned. The reason is that you cannot gauge the amount of money you will be requiring. There may more cash be needed than what you have stored for the event. Money is the most unreliable asset because its need can arise at any time without any exact quantity. Therefore the only viable option left for a person is to ask for emergency cash loans.
The sanctioning of loans is not a cumbersome process now. It has been made simpler and easier for the people. Even loans for people with bad credit are now being sanctioned. This has led to an increased demand in the people for loans. The rules and regulations were lifted or tweaked to make the process of lending money easy. This will increase the cash flow in the economy and boost the financial institutions’ freedom. In return, the people and companies which are applying for the loan can invest this money. This creates a consumerism culture and boosts the economy.
Therefore the loans for people with bad credit also helps to uplift the market. So as more and more people are applying for the loan the cash in the economy is moving faster. But there is a problem with allowing more money to flow in the market. This is the debt problem. There are two types of debt being defined according to the economic standards –
Good Debt – This is the debt which is not at all harmful to the economy. Actually, it is being promoted by more and more people. Therefore loans for people with bad credit comes into existence. The good debt can also be defined as the funding or initial cost required to start any operation. Whenever a business is set up it requires some cost as the initialization cost. This is arranged by taking loans and is returned once the operation becomes profitable. In this way, the lending of money is good for both the parties. The debt is good for the lending institution as it will give it the principal amount of the interest, thus escalating the profit. On the other hand, the borrower is able to set up his/her business from a scratch and without any hassle.
Bad Debt – This type of debt is issued when the speculative cost or profit is not in accordance with the actual profit. The debt is sanctioned in the same way as the good debt loan but the return at the end differentiates it. If the business fails or the profit is marginally low then the loan translates into bad debt. Bad debt is extremely harmful to the economy and the banking institutions. This causes a lag in the economic transactions and plummets the economy. Therefore it is advisable to refrain from any type of bad debt.
The bad debt is dealt in a hard way by the financial institutions and can be avoided by the borrower in the following ways:
1. Situational Analysis
It is a very general thing that there may be an urgent and unexpected need for cash can arise. Thus the funds you have allotted for your EMIs had to be diverted to other important options. Therefore always do a situation analysis. Whether it is really that important to skip the instalment? Can there be any other method to provide for it? Can it be managed by something else? If you have not filed your instalment on time then look for a genuine reason. Always be ready with the necessary record and paperwork to show to your lending institution. Your track record plays a major role in this operation. Most of the banks understand it and this can be averted.
2. Do Not Lie
Never ever try to keep your bank or financial institution in dark. Most of the people tend to overlook this and ends up in trouble. Always remain faithful to the lending institution whether it is your bank or any other financial institution. This is important because this develops the mutual relationship between the two. If you will keep your bank in dark then it will hamper your relationship with the bank. Also, it will develop distrust among the two parties.
3. Grace Period
Most of the banks understand the critical situation in which you may not be able to pay your instalment on time. This is a very natural and practical problem and can occur with anyone. Therefore you can always ask for a grace period by your financial institution or bank. Most of the banks happily give you an extended time to repay the lapsed instalment. Indicating your bank in advance will also save you from any extra charges or any late fee.
4. Liquidate Your Assets
This should always remain your last resort in any case. If there is a consistent failure to pay your EMIs on time and you cannot manage to arrange for funds then you should look to liquidate your assets. Sell the unwanted share to arrange the needed money.