Access to credit is quite easy these days. From an inexpensive mobile phone to a house, the loans are available to meet all kinds of needs. And thus, it is quite possible for one to opt for borrowing at a much greater frequency than he would have in past. While availability of loan does help in boosting the economic activity and does aid achievement of individual’s financial objectives, but following is the list of questions that one must ask before signing on that dotted line.
Do I really need that loan?
This should be the starting point. One must ask this highly important question. You may feel strange but the fact remains that the ease of credit availability at times lead to individuals getting indulged in loans even when they do not need it. Especially when it comes to consumer loans. A new model of that new mobile phone that is priced higher than the one that possibly would suffice the need may lure one into taking that loan. One has to understand that credit comes at a cost and if the same money is invested, it will help build a corpus and make on financially free over a period of time.
How much do I need to borrow?
Another vital question that one needs to answer is that how much should actually be borrowed. While taking a loan, the chances of one picking up a higher loan amount than that which is actually needed are quite high. Just because one is eligible for a higher loan amount and he may be able to utilize the same for some other purpose, is not the right thing to be doing. One must only take loan for the amount that is actually needed.
Is my application going to get approved?
This is another important question than needs to be asked before applying for that loan. Many a times people find themselves into a spot on account of the loan application getting rejected while they always assumed that the same shall get approved. Income is not the only criteria, one’s credit score also has an equal impact on the outcome of the borrowing request. The CIBIL score calculation is an outcome of varied factors and the same can swing in wrong direction on account of reasons other than defaults as well. So it is always advisable to check the bureau report before initiating loan application.
Which loan shall be better for me?
When in need of funds, there can be multiple options to fulfil the requirement. From personal loan to gold loan or from a business loan to over draft today the lending institutions offer varied products and one would need to weigh the offering and suitability of product.
For example, one is in need of funds for the marriage of the child. One can opt for a personal loan or if there is an active HDFC home loan or from another housing finance company, a top up can also be one of the options. While the personal loan will get over faster, it will come with a higher rate of interest and the EMI will he far higher in comparison to the home loan top up. On the other hand the home loan top up will be much cheaper and the higher term with lower EMI will leave one with more cash in hand month on month.
How do I get the best deal?
Generally people just check on the rate of interest while evaluating the loan deals. The other terms are ignored completely. One must evaluate the deals taking into account the overall terms since the other terms can make the deal inviable.
Will I be able to serve the EMIs without much stress?
Any borrowing will eat into the available funds every month. One must take into consideration the actual expenses that he may have. While the banks apply a generic rule of 50% of net income to be qualifying for monthly EMI outflow, but one’s obligations on recurring expenses could be completely different for varied reasons.
In the end let us understand that the keyword to be successfully managing the borrowing is “Prudence”. One has to be conscious on the loans to be managing them successfully.
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