Loan liquidation – Meaning and how to liquidate your Loan

Last updated on March 5th, 2023 at 09:27 pm

Debt is a term that describes the amount of money that a party owes to another party. In other words, it is money borrowed by a person or legal entity from another. 

Generally, a loan is one of the most common types of liquidated debts. Loans could be in the form of a home loan, car loan or even student loan. 

This article covers all you need to know about the meaning of Loan liquidation and how to liquidate your loan.

What is loan liquidation? 

Liquidation often refers to the process whereby a business folds up and I sell its free or unpledged assets out. 

The proceeds of this sale are afterwards used to pay the business’ debts. Usually, in finance, liquidation occurs when a company becomes bankrupt and it cannot settle its debts and obligations. 

From another point of view, liquidation could mean the transfer of valuables or potential assets into monetary form. However, this definition is not particularly applicable here, as the subject loan is usually already in monetary form.

Accordingly, a Liquidated Loan means a Loan which has been liquidated or paid back. The liquidation of a loan can be either by way of payment in full, a disposition, a refinance or  a compromise. In addition it can also be a sale to a charged Off Loan Purchaser or any other means of liquidation of such Loan.

How can you liquidate your loan?

Before opting for any loan agreement, it is important that you have a repayment source and plan in mind. In other words, your liquidation plan ought to begin with your loan plan. That way, you do not get stranded along the line. 

There are certain tips you must keep in mind to experience a successful loan liquidation process:

1. Make your repayment or liquidation plan a priority: when your repayment plan is your priority, you get to make a conscious effort towards it. These efforts include saving ahead to cover your EMI even before it becomes due.

2. Focus on repaying your high-interest loans first: Most people often focus on paying the smaller debts first and gradually move up to the bigger ones. However, research has shown that this would only prolong your repayment period and increases the interest you get to pay. Therefore, try to direct the maximum amount you can afford to pay to your high rate loans while securing necessary payments on the smaller ones.

3. The higher your income gets, the higher your repayment percentage: this is another factor that can help you go through a successful liquidation process. Make a conscious effort to increase your repayment percentage each time you obtain an income increase. This would cut short the time that your repayment plan would have lasted and put your mind at ease.

4. Use bonuses and windfall gains to pay larger debts:

 Rather than spend your bonuses on the latest gadgets and explore your desires, settle your costly debts.

5.  You can also use existing investments to repay debt: 

While it may seem unwise to use your investment for loan liquidation, it goes beyond that in reality. Not only does your indebtedness reduce your total credit worth, but it also ends up making the top of your expenditure list. Therefore, to avoid being clogged by debts, it is better to clear them off when you have what it takes.

Conclusion

There are several entities, corporations or private investors that issue out loans. Most of which also provides liquidation or pre-liquidation options for their customers. An example of these is banks. Liquidating your loans can come easily, especially when you fuel it by your willingness, discipline and determination.