Five Golden Rules to Follow When Taking a Loan
When there is a need for extra funds, you look for viable options that are secure and reliable. The promise of a hassle-free procedure with step-by-step assistance makes applying for a loan at a bank even more lucrative. Given the technological advances in the banking sector, loan approval and disbursal are processed and successfully completed in next to no time. At YES BANK, we not only value your time, but we also understand your financial obligations, and aim to provide financial solutions for all your needs. However, if you are a potential borrower, you should keep a few important points in mind while applying for a loan.
Follow these golden rules to bypass the loops of EMIs and accumulative repayments while maintaining a healthy credit score:
1. Borrow According to Your Payback Capacity
Applying for a loan you can easily payoff is a good way of steering clear of the EMI spiral. You can do this by making a deliberate effort to keep your EMIs below 15% of your monthly in-hand income. In case you have opted for more than one loan, the cumulative EMIs should not exceed 50% of your total monthly in-hand income. This ensures that your finances are not overburdened with EMI payments, and you have the required funds to meet your daily expenditures. By keeping your EMIs at a manageable level, you can also save up for the future or emergency situations.
2. Opt for a Short Repayment Tenure
After you have decided on the loan amount you need, you will be presented with various repayment options. Major lenders offer a maximum of up to 30 years of loan repayment cycle, and the longer the tenure, the lower the EMI. Although this may seem attractive, and a larger sum may seem easy to be paid off in more instalments, the interest rates for an extended period of as long as 30 years may triple the amount you initially claimed. But in cases where opting for a longer tenure is a more viable choice, you can always keep increasing the EMI amount with every subsequent increase in your income to reduce the tenure, and thus, the amount to be repaid. The banking sector revises its interest rates in short intervals. Always be on a look-out and switch to a lender that offers cheaper loan interest rates. YES BANK provides attractive and best-in-class interest rates with an added advantage of hassle-free and quick disbursal of loan.
3. Ascertain Regular and Timely Repayment
Prioritise your expenditure and let repayment of dues take first precedence. The more regular and disciplined you are in repaying your EMIs, the better are your chances of not only paying off your debts in time, but also earning better credit scores for future loan applications. Missing or delaying an EMI incurs hefty penalties and an added interest on the overdue amount. This may be a problem in the future when you have to apply for credit. Also, if you have to choose between paying an EMI and investing, pay the due amount before investing. This saves you from being a bank defaulter, and resultantly, from an engulfing EMI-interest loop. Maintaining a disciplined repayment schedule also prevents you from splurging, further enabling you to save.
4. Take a Life-Cover with Big-Ticket Loans
Opting for an insurance cover at the time of applying for a large loan amount is a wise decision. This life cover will ensure that under a circumstance where something unfortunate happens to you, your family can easily cope with the outstanding amount of the loan through the insurance cover. Protect and insure not just your family, but also the asset for which you applied for the loan in the first place. Instead of opting for a cover insurance equal to the outstanding amount, discuss with the lending bank to provide you with a regular term plan to safeguard your family. It is also of utmost importance that you read the terms and conditions of the loan carefully. By understanding your obligations and the lender’s duties, you stand a better chance at negotiating the best deal for yourself.
5. Keep Your Family Informed About Your Loan
Do not undergo the stress of applying and repaying for a loan alone. Monetary concerns affect the entire household, and in case you are the sole earner, your expenses are bound to be affected by the deduction of the EMIs from your monthly household budget. Financial matters need to be discussed with the family, particularly when you seek external assistance in the form of a loan. Discuss with your family the reasons, the amount, and the repayment tenure of the loan you seek. Your family is your support system, and they may have some money to spare to meet your financial requirement. Or, they may help you find more cost-effective solutions. Also, keeping your family in loop will prevent excessive pressure on you to squeeze out more money for trips and investments you can avoid.
Whether you are opting for a personal loan, a home loan, or a car loan, make sure to do considerable research over the interest rates and repayment tenures offered by leading lenders in the banking and non-banking financial sectors. Also, knowing of any tax benefits may increase your chances of saving more for the future, whether it is for a family trip, a wedding, a child’s education, or any other situation. It is also essential that you plan your retirement well in advance and do not let the loan repayment affect your retirement funds in any way. Be steady with your EMIs, look out for a possible, profitable switch to lenders offering lower interest rates and take cautious decisions while making expenditure. With all these points in mind, you can manage your finances and household well, and increase your credit score for future loan applications.
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