Every person is not born with a silver spoon in their mouth. All our needs cannot be fulfilled if we don’t have enough money to do that. But loan application can sometimes come to your rescue when you have a cash crunch and need a bug amount quickly.
Today banks provide through SMS, emails, and phone calls promising low-interest rates, longer terms, quick disbursals, easy processes and minimum processing fees, etc. according to the people requirement.
Some people find it difficult when it comes to the loan application. If you too are facing such difficulties to obtain any kind of loan, here are 10 rules you should follow before loan application:
- Never Borrow such Amount that you cannot Pay
Be a smart borrower. Don’t exceed your limits as even our old generation told us “Don’t live beyond means”. Always think about repaying it back when you go for the loan application. Even your EMI’s should not exceed 15% while personal loan EMIs should not account for more than 10% of the net monthly income.
- Don’t go for Personal Loan if you want to Invest
Personal loans or unsecured loans come with higher interest rates than secured loans like an auto loan or a housing loan. Hence, it is not prudent to take a personal loan to fund your business or buy stocks that may or may not work in your favour.
- Keep the Tenure(Time Period) Short
Short terms loans are highly recommended in comparison to longer tenures. 30 years is the maximum tenure limit that is offered by all the banks and major lenders. The idea of longer the tenure, shorter the EMI may seem to be very tempting while taking the loan but it will be stressful in future. Thus, try to go for shortest tenure you can afford.
- Read the fine print before signing
Fine prints exist for a reason and are definitely not to save papers and protect the environment. While the transparent part of the deal is specified in bold letters, a couple of shady clauses are sometimes hidden in the fine print. Use a magnifying glass if you must, but please read and understand before you sign.
- Be Regular and on Time for Repayment of Amount
Repayment of your dues should be disciplined. Ensure timely and regular repayments. Whether it is a short-term debt like a credit card bill or a long-term loan for your house, make sure you don’t miss the payment. Delaying a payment or missing an EMI are among the key factors that can impact your credit profile and hinder your chances of taking a loan for other needs later in life.
- Keep an eye on fluctuating interest rates
The base rates often undergo slight changes as per the RBI guidelines, which in turn impact the interest rates imposed by lenders. You can always refinance your loan if you find a lender that offers better rates. This can save you quite a lot on EMIs. However, before taking a decision talk to your loan manager about it. The extra rate could be waived off if you are the kind of customer the bank wouldn’t want to lose.
- Do not take another personal loan before closing the current one
Never apply for unsecured loans one after the other (even if you have enough income to do that) is not looked upon favorably by credit bureaus. It shows your credit-hungry behavior and can lead to a drop in your CIBIL score. This will make it difficult for you to avail any loan in the future.
- Substitute High-Cost Loans
Prepare a list of all the outstanding loans and identify the high-cost ones that can be replaced with cheaper loans. It is a good idea to consolidate your debts under one omnibus low-cost loan, in case you have too many loans running. For an example- an unsecured \ personal loan that charges 18-20% can be replaced with a loan against life insurance policies.
- Keep your family in loop input your debts
It is important to discuss it with your family while planning a loan as the repayment of the loan will impact your overall finances and household budget. At least keep your spouse in the loop when you take a loan application. Never hide such things from your family and spouse because in case all will not get well it will not only affect you financially but will also increase the emotional stress. It’s better to have a support system.
- Don’t Mix Retirement by Avoiding Loans
People are emotional about certain financial goals. Especially when these relate to children. Securing your child’s future is important, you need to also assess if it impacts your own future. Dipping into your retirement corpus to fund your child’s education can be a risky proposition. Students have options like loans and Scholarships to cover their education costs but there is no such arrangement to help you plan for your retirement needs.
We hope you find this blogs useful. You can also go through the blogs given below