Presently you can find a plethora of banking and non-banking institutions offering instant loans with quick disbursal and low interest rates. Applying for one can be beneficial for when you are tending to a financial emergency. However, given the demand, there are some rules that can help you with your application process.
Rules to follow when taking a loan:
- Do your research
Before you apply for a loan with a lender, do a thorough research on the different lenders and the rate of interest offered by them. Going through your options is always beneficial. You can go through the different lenders, and this can help you find the lender best suited for your financial needs.
- Use an EMI calculator
Many mobile loan apps come with an EMI calculator to help plan your loan effectively. A personal loan EMI calculator can help estimate your total interest which can be useful for planning your finances. Just enter the principal loan amount, the rate of interest and the loan tenure to calculate the total interest. It can also help in finalising the tenure for your repayment to suit your needs.
- Borrow only what you can repay
One of the most important rules for those borrowing is to not go beyond their means. Take out a fund that you will be able to repay quickly. One rule of thumb is that car EMIs should not exceed 15% of net monthly income, while personal loan EMIs should not exceed 10% of net monthly income.
- Short tenures are the way to go
The common belief going around is, the longer the tenure, the lesser the EMI amount. However, this has a catch. Opting for a shorter tenure can increase the interest amount by a lot. It is, however, preferable to take out a loan for the shortest period possible. The interest expense on a long-term advance is unnecessary.
- Timely repayments to avoid penalties
Discipline pays off, particularly when it comes to debt repayment. Make sure you don’t miss any payments, whether it’s a short-term debt like a credit card bill or a long-term loan for your home. Missing an EMI or making a payment are two major factors that can damage your credit score and make it more difficult to obtain a loan for other purposes later in life.
- Take insurance for big loan amounts
If you take out a big home or car loan, you can also get insurance. Purchase a term plan for the same sum to ensure that your family is not left with unmanageable debt if you pass away. If your dependents are unable to pay the EMI, the lender may take control of the asset (house or car).
- Read the fine print
The terms aren’t exactly easy to read. A put-off may be paragraph after paragraph of legalese written in a small font. To avoid unexpected surprises, read the terms and conditions carefully. Some lenders have a bad reputation for sneaking in clauses that are biased against the borrower. If the terminologies used are beyond your comprehension, have a chartered accountant review the agreement before you sign it.
- Never use borrowed money for investments
Never invest with borrowed funds. Fixed deposits and shares, which are highly secure assets, would not be able to match the rate of interest you pay on the loan. Higher-yielding portfolios, such as equities, are also too risky. If the markets fall, you will not only lose money, but you will also be saddled with an EMI.
- Go for low-cost loans
Consolidating your debts under one omnibus low-cost loan is a smart idea if you have so many loans open. Create a list of all unpaid amounts and locate the ones with high interest rates that can be replaced with lower-cost ones.
- Download the mobile loan app
A mobile loan app can help in keeping track of your funds borrowed, EMI due dates, and pre-approved offers. It ensures an easy and hassle-free application process. You can apply on the app with scanned papers, and the loan sum can be sent to your door or credited to your bank account, whichever is more convenient for you.
