Loans and taxes – two different things as they are, are also linked in some ways that can lead to more overwhelming tasks than one can imagine. Credit scores depend on payment history and having a habit to make payments on time always help in keeping the credit score high. While computing and setting your tax liability can appear to be a daunting task, you must not trivialize this activity.
Especially in the case of entrepreneurs where loans are almost a basic norm that works for a regular business generation, one cannot afford to be ignorant towards tax payment. Few reasons due to which loans can get rejected are:
- Not having filed ITR (Income Tax Returns)
- Having filed the ITR (Income Tax Returns) late
- Having paid minimal taxes, which could also mean restricted or limited income and not as per the prerequisite of the lending bank/ institution
The credit score is basically a numerical indicator of a persons’ ability to pay back the loan they’re applying for. Lending institutions/ banks refer to this to assess the borrowers’ credit-worthiness.
Read below to understand how this is also associated with the payment of taxes:
- Fund allocation judgment – Being punctual in paying taxes increases chances of getting the personal loan disbursed, as it portrays to the lending institution/ bank the seriousness and intent of paying back in time.
- Insufficient tax-paying history– Banks give preference to applications from those who have actively been filing ITR for at least two years prior to the application. It makes it simpler for them to judge the credit-worthiness of such individuals.
- Low credit score – When credit bureaus update the defaulters received from banks, it gets updated on an individual’s record – this is often hard to remove and may take months of disciplined and sustainable financial behavior by the borrower to get their record back on track.
- Intention to Pay – Payment of correct and timely taxes also indicates that the person is high on integrity and responsible towards their financial obligations, which is an important factor considered by the lending institutions.
- Strength of Business – An increased amount in taxes paid over years show the business strength and seriousness of the borrower.
A higher income usually also results in being able to getting Lower Personal Loan Interest Rates.
It is advisable to keep working hard and ensure to make your payments on time, paying the amount committed and keeping it straight with your bank – avoid asking for extensions or settlements and make your payments before they’re due. Financial discipline is what gets your credit score up to a point that will ease the loan process and ensure that loans are granted.
The above points clearly indicate that paying taxes in time, and as per the required norms help build your case stronger and help you get the personal loan you need, to be able to grow and flourish further!
Also Read: Should You Apply for Personal Loan to Repay Credit Card Debt?
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