Non Performing Loan – NPL in Banking Industry

Applying for a loan in a bank is a bit difficult these days because finance institutions have already become so keen in choosing loan applicants. Among the very many reasons for this is a non performing loan, which is basically a loan that has stopped to be updated.

Once a loan is no longer paid right on time, it starts to accumulate interest that gets bigger over time.

And as long as the non performing loan continues to receive no upgrade the interest and penalty piles up to an impossible amount that the loan becomes totally dormant. Or, the loan can be updated and condoned given that it is paid in full or renewed.

A non performing loan taints the credit score of a person or a depositor. This keeps a person from getting another loan or be approved even from other banks or financial institution because credit score data is being published for financial companies and establishments for future references.

Here is what you can do to minimize the chance of developing a non performing loan and/or getting a very low credit score:

1. Keep loans at an amount that is within your payable capacity. One of the main reasons why non performing loans happen is that the loan amount is too big for the means of the person who is making a loan.

Do not try to apply for loans that are not within your means as this will only lead to higher non performing loan probability. Now, you surly don’t want that because that will only bring negative feedback on your credit score. When you do have a negative credit score, you will also receive a bad feedback.

That will be listed on a data that will be published among banking and financing institutions. Because your name is listed among those that have bad credits, you will no longer be qualified to borrow from these institutions. You will be branded as high-risk credit.

2. In case the interest rate becomes too high, you should contact your representative and ask for ways to renew or refinance. The only way to remove the possibility of earning a bad credit reputation is to keep your loan performing.

And so, if you think your interest rate is becoming too high for you, you should start thinking of ways on how to keep the rates at a manageable level.

To do that, you have to renew or refinance your loan. This way, you will start with a lower rate again and probably keep it from becoming a non performing loan. Also, it is best to keep your payments up to date. This will keep your refinanced or renewed loan from gaining too much interest once again and the same history will happen again.

3. Keep your payment up to date. It is a common belief that people would want to loan in good faith, which means they are really amenable to the interests and rates on top of the principal of their loaned amounts.

The only reason why a credit becomes a little too difficult to keep up with is some untoward incidences, including some unforeseen payables and emergency expenditures. When that happens, the person who loaned from a bank is going to miss or at least be late in paying.

That is already a sign that the person is going to be a high risk account. If he or she continues to fail in updating his or her loan, this will already result to a non performing loan.

Sometimes, a bank representative or authorized personnel will provide payment options to the gone bad credit. These choices maybe a modified scheme of payment or a refinanced payment scheme, and they will basically depend on the track record of the account.

Usually, a credit account who is allowed to avail a refinancing is someone who has no negative or barely missed a payment.

A modified payment scheme, on the other hand, is as its name suggests, simply a modified payment like lower payments until the account get back on track.

The reason why too many people are clamoring for high credit score is financial reputation. The higher the credit score you have the better chances you have when applying for credits or bank loans.

This also result to very many positive benefits like fast approval of visa whenever going to other countries or places for both business and leisure purposes and the likes.

But most importantly is the peace of mind that a person gets when he or she is not dealing with a non performing loan. It is more satisfying if life is being lived without credits and payments to think of at all times. This will only bring nothing but annoyances and ridiculous situations that you surely don’t want to deal with.