Getting a new car? Planning to move into a bigger and better home for a good lifestyle? Child is planning further education abroad. Well, all these are some of the reasons one may need extra money to support these dreams and desires. The only thing that comes to mind for the need of extra funds is to take a loan.
Zero processing fee, quick approvals and many such lucrative offers by banks are there to lure the customer. But these should not be reason for you to base your decision of taking a loan from that Bank.
If you are a potential borrower, you need to keep these 5 rules in mind before applying for the Bank Loan.
1. Borrow as per ones paying capacity:
Stepping over your regular capacity to get that extra big house or a fancier car can later burden you and disturb your entire financial plan. The thumb rule here should be to borrow only 15% of your paycheck. This way you make sure that your other expenses of daily life are not compromised. Do not overburden yourself with EMI payments. Rather plan it such that it allows you to continue with your financial goals without many alterations and changes.
2. Keep the tenure short:
Banks can convince the customers to go for a longer tenure for their loan amount to reduce the EMI payout per month. But there is a catch here. The longer the tenure, the more interest you pay. Banks have a max limit of 30 years as a tenure. The longer the tenure you choose, its doubles or even triples the amount you initially claimed. Young millennials may not be able to take loans with shorter duration. They can however pave a smart saving plan and repay the loan early or increase the EMI payable.
3. Keep an eye on changing interest rates:
Banks keep changing their interest rates at regular intervals. Always keep your eyes open for this and switch once you find a better and competitive interest rate that other banks offer.
4. Secure the loan with an insurance cover:
Once you take a loan, not just you, but even your family is liable in case of an unfortunate event. When applying for a loan of huge amount, make sure the loan is secured by an insurance cover. By doing so, your family can cope with the outstanding loan amount with the help of the insurance cover. Opt for a term plan and read all the terms and conditions before singing on the dotted lines.
5. Do not Ignore other financial goals:
A new loan and EMI can affect your financial planning and budgeting. But don’t let it disrupt it completely. Make sure you still follow best saving practices and invest for retirement and child education. Don’t let your one loan snatch away your other future commitments and needs.
This being said, it’s also always important to keep one’s family in loop when it comes to financial matters. There are times when people refrain from sharing financial matters with their spouse or other family members. And a sudden burden of loan repayment can be overwhelming and surprising for the family in case an unfortunate event with the borrower. Discuss the loan with your family in entirety, the amount, the interest rate, tenure, and pre-payment plans if any.
Before opting for any form of loan like, home, car or personal loan, do a thorough research. There are many leading lenders and you want to understand the terms better before making the commitment. Also, know the tax benefits that come with loan. Be steady with your EMI payments and avoid faltering on payments which could negatively impact your credit score and future chances of taking another loan.
Follow these simple steps, manage and plan your financials wisely, practice budgeting, and there will not be any stress or burden with your finances.