Fear low credit score? Avoid one-time loan settlement

Private sector banks like Axis, Kotak Mahindra, and RBL have reported an increase in non-performing assets in their unsecured loan portfolios, which include credit cards and personal loans. Instead of panicking, here's how individuals nearing default, or those who have already defaulted can deal with the situation.

- SANJAY KUMAR SINGH & KARTHIK JEROME

Factors causing stress

The primary cause of stress among borrowers is over-leverage. "A person's Equated Monthly Instalments (EMIs) should ideally not exceed 50 per cent of their net take-home income. If this happens, they will not be left with enough money to meet essential expenses," says Arun Ramamurthy, director, Andromeda Sales and Distribution, and an expert in digital lending.

Many people are living beyond their means. "The YOLO (you only live once) philosophy has gained prominence while financial prudence has taken a back seat," says Anshuman Panwar, co-founder, Creditas Solutions, a digital debt collection agency.

"Layoffs, especially in sectors like information technology and startups, are making it difficult for borrowers to pay EMIs on time," says Satish Mehta, founder, Athena CredXpert, which offers credit counselling.