Are you looking for viable options for taking a loan? If yes, then make sure those options are reliable and secure. Nowadays, applying for a loan has become hassle-free with the specific step-by-step assistance provided to the customers.
With the advancement in technology, even the banking sector has made the loan facility easy and feasible for the customers. They do believe that our time is precious and provide us with the best solutions according to our needs.
So, if you are a potential borrower, it is essential to keep a few things in mind. And here I am with the 10 golden rules to follow when taking a loan.
It is quite essential to maintain a good credit score, and these rules will help you in bypassing all the EMIs loops as well as the accumulative repayments.
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Borrow what you can Repay
It is quite essential to go by the saying, ‘don’t live beyond your means.’ This means that borrow a loan which you can repay quickly rather than gobbling up your income. There is a one-thumb rule which must be followed, and that is, “Your monthly outgo towards all your loans put together should not be more than 50% of your monthly income.” You shouldn’t apply for a loan because it is available. It is essential to make sure that the ratio of your loan-to-income is within limits.
Short Repayment Tenure
The longer repayment tenure is tempting because EMI would be lower. But it is best to opt for the short repayment tenure, which is affordable to you. Though the long repayment tenure keeps the lower EMI, it is high on the interest part. So, here you should follow one rule, and that is, “Taking a loan is negative compounding. The longer the tenure, the higher is the compound interest that the bank earns from you.” Also, sometimes, it becomes necessary to go for a longer tenure, but in that case, the best option is increasing the EMI every year according to the increase in income.
Ensure Regular Repayment
You must prioritize your repayment of the loan among your other expenses. Your timely refund will help you in earning good credit scores for your future loan applications and also, paying the debt in time. If you miss or delay the EMI, then it will incur you with hefty penalties along with added interest on the amount which is overdue. So, if you don’t want to get a slap from your loan, repay them on time.
No Loan to Invest
Avoid taking a loan for investing because most investments couldn’t be able to match the loan repay interest. This is one of the basic rules of investing that you should not invest in using your borrowed money. Also, avoid taking loans for personal expenditure.
Take Life-Cover for Big-Ticket Loans
If you are opting for big-ticket loans, it is advisable to go for insurance. It is to make sure that if something happens to you, your family won’t get into trouble for your unaffordable debt. The cover insurance will be equal to the outstanding amount, and thus, it will help you safeguard your family. Apart from this, do read the terms and conditions carefully as it gives you the best deal by negotiating with the lender.
Look for Better Rates
It is essential to keep track of the changes in the market to have better loan rates. Keep looking for better interest rates and switch it to a cheaper loan. But remember that the difference between your mortgage and a new one should be at least 2%. Also, switching to a better and cheaper loan option is beneficial if done in the early tenure because it will impact on the loan tenure.
Understand Fine Print
Before applying for the loan, it is essential to read and understand all the terms and conditions carefully. So, if you don’t want any surprises later on, do read the fine print. You need not hurry while reading the agreement because it is essential in terms of policies. Rather than getting the unexpected charges, later on, it is best to go through the documents beforehand.
Consolidate the Loan
You may have multiple loans running, and thus, the best option is to consolidate all the debts under one. What all you can do is make the list of all the loans and check which ones you can replace with the cheaper loans.
Avoid dipping in Retirement Corpus
If you are planning to fund your children’s education with your retirement corpus, then avoid it because it is not advisable. There are several options for education, like loans and scholarships, but there isn’t an option for retirement. So, to balance better, let your expense planning include your goals too.
Keep family in Loop
While taking a loan, it is essential to keep your family in a loop. And this is because the repayment of the loan amount will affect the overall expenses of your family. It is you who have to make sure that your partner must be aware of the loan and the reason for taking the same. Avoid keeping your needs under the wraps from your family. Also, they may help you in finding other best options too.
No matter what kind of loan you are planning or applying for, it is a must to make sure you do the considerable research beforehand. You should not only consider the repayment tenures or the interest rates, but even you must know the tax benefits too.
Apart from this, it is essential to plan your retirement and prefer to repay before you get retired. Additionally, do lookout for ways to switch for cheaper loan rates and cautious while expending your money.
So, these are the 10 golden rules to follow when taking a loan, which you need to keep in mind for managing your finances.
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