5 Tips to Remember When Availing Any Loan
Want to buy a new house or renovate the old one? Want to set up a new business or expand the established one? Looking for funds to go on a vacation, bear wedding expenses, medical expenses or meet other personal financial needs?
Loans can be life-saver in all such situations!
Whether it is a Business Loan, Personal Loan, Home Loan or any other type of credit – they come to your rescue when there is no other way to come out of your financial woes.
However, before making the purchase decision, it is advised to consider five essential tips mentioned below so that your loan experience becomes smooth and hassle-free:
1. Make Sure EMIs are Affordable
Analyze your monthly income, expenses, and savings before taking out a loan. Keep your EMIs (equated monthly instalments) small so that you can easily afford to repay them each month keeping all bills and expenses in consideration.
Here’s a thumb rule: The sum total of all your EMIs should not exceed 50% of your net monthly income.
Exceeding your limit may become a hindrance for other important financial goals like investments, insurance, retirement planning, etc. Also, if in any case, you default on repayments, your credit score will go down and impact your future loan eligibility.
2. Search for Better Rate of Interest
Nowadays the market is full of financial service providers (online and offline both). There are a lot of banks and NBFCs (Non-Banking Financial Companies) offering diverse loan products at varied interest rates. Do your homework before finalizing a deal!
In addition to interest rate, consider processing fees, brokerage fees, foreclosure charges and other expenses. Sometimes a lower-interest loan can actually prove to be costly if you combine all associated charges together.
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3. Opt for a Short Tenure if It’s Affordable
It is always better to pay off your debt as soon as possible because longer tenure means bigger interest burden. Opt for shorter loan tenure if your monthly budget allows you to pay higher EMIs. Even if you avail a loan with longer tenure due to restricted monthly budget, make sure you are aware of the prepayment charges (if any). In case you have a surplus at any point during the loan tenure and wish to foreclose your loan (in full or part), you should be able to do that conveniently without much a burden.
4. Opt for Balance Transfer if Needed
Interest rates on various loans are falling down nowadays. In such falling interest rate scenario, if anytime you feel that the interest cost for your existing loan is too high than the prevailing market rates, you can opt for balance transfer facility.
Always keep a tab on interest rates and if you find someone who is offering better rates, switch the lender! Make sure that there is at least a difference of 2 percentage points in interest rates; otherwise, the switching may become costlier (including foreclosure and processing charges).
Consider loan foreclosure when you receive a sizeable bonus or incentive and also keep your important expenses in mind because your entire surplus will be gone if you opt for loan prepayment.
5. Keep Your Other Priorities into Consideration
Before opting for a loan keep your priorities into consideration. If you have a family, you might have to pay for your child’s education or marriage, your parents’ Health Insurance or make other important expenses first. Keep your priorities and critical financial goals in mind. Make sure you are financially secure enough before you purchase a loan (especially a long-term loan).
Keeping all the tips mentioned above in mind, you are all set to avail a loan!
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