Now is the time to apply for a loan. But, before you do that, you need to be educated on why you should take a loan in the first place, and whether or not it will seem like a wise decision in the long run. You need to be able to make an informed decision.
Here are six top things you need to know before you apply for a loan.
DON’T BORROW MONEY YOU CAN’T AFFORD TO REPAY
You have to be prudent when it comes to applying for loans.
It is a thumb rule that you should only take a loan you can easily repay. This also translates to ‘don’t live beyond your means’.
Make sure that your loan-to-income ratio is within manageable limits.
If the reason you need the money isn’t exactly an emergency, and you can wait it out a few months (or longer), do it. Borrowing money is a big financial step, and it can help you or hurt you—depending on how you manage it.
Think deeply about how much you can actually afford. Being able to cover the monthly payment doesn’t mean you can afford the loan.
Be sure to take note of how your loan may affect EMI (Equated Monthly Installment). You wouldn’t want it to take up much of your income as there are other important financial goals you’ll need to meet.
KEEP PAYMENT TENURE AS SHORT AS POSSIBLE
From research, the longer the payment tenure, the shorter the EMI, but, this will only make sense if applying for a large sum to be paid over a long period. Take note that the interest paid will accumulate.
Therefore, it is best to take a loan for the shortest tenure you can afford.
ENGAGE DISCIPLINE, ENSURE REGULAR REPAYMENT
When it comes to applying for loans, discipline is an imperative trait to have as you will need it when repaying your dues.
Delaying payment is one of the key factors that can impact your credit profile with your financial institution. Remember you may need to take loans for other needs later in life, so try to maintain a good record.
DON’T BORROW TO INVEST
This stand as another financial thumb rule.
Never use borrowed money to invest. Similarly, avoid taking a loan for discretionary spending. If you must go on a holiday, or use money for such reasons, start saving now.
SEEK BETTER RATES AND PAY ATTENTION TO THE DETAILS
Keep your eyes and ears open about the new rules and changes in interest rates. You will want to put an ear to the ground for the best rate and switch to a cheaper loan if possible.
Also, switching will be more beneficial if done early in the loan tenure. The same applies to prepayment of loans. The earlier you do it, the bigger is the impact on the loan tenure.
Keep an eye out for details like:
- Loan Processing Fee
- Failed Payment Fee
- Prepayment Penalty
- Late Payment Fee.
Read through your loan document to know what exactly you’re getting into.
KEEP FAMILY IN LOOP ABOUT LOAN
Before you take a loan, discuss it with your family or guardians.
They may have some experience and they may also be able to guide you on how to go about taking your loan. They may also be a form of financial aid, so rather than applying for a loan, you might as well benefit from sharing your thoughts with family.
Don’t miss out on that opportunity by keeping your need within.
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