Credit should only be used in a responsible manner.
Otherwise, you may find yourself unable to pay your EMIs (Equated Monthly Instalments). You will be charged a late fee as well as punitive interest if you miss or postpone any EMI. If you have a collateralized loan, such as a house loan, auto loan, or loan against property, the bank may seize or take over your asset in the worst-case situation. Not to mention the unfavourable influence on your credit score and history, both of which may have long-term consequences.
Penalty save
You may avoid the penalty or late payment fee that banks impose by paying your EMI on time. Typically, the penalty is a percentage of the EMI amount. This will put you in a worse financial situation.
Positive credit score effect
Paying your EMIs on time keeps your credit score high and helps you build a favourable credit history. This factor is given the most weight in determining a borrower's credit score.
It shows that you are creditworthy and timely with your payments as a borrower, making borrowing simpler in the future.
When you apply for a new loan or credit card, the bank will take your better credit score into account and may approve your loan sooner or for a larger amount.
Top-up loans are easier to get by.
If you pay your house loan EMIs on time, getting a top-up home loan is simpler. When compared to an unsecured personal loan, a top-up house loan has the same interest rate as a home loan, making it a cost-effective means of borrowing for any purpose.
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