Given the technological advances in the financial sector, loan approval and disbursal can happen in virtually no time. Today, whenever there is a need for extra funds, one can look at multiple loan options that are both secure and reliable. But before you go scouting the market for the most viable solution, it would be wise to first follow this immutable checklist:
1. Think before you borrow
The golden rule of smart borrowing is ‘to stay within your means’. Even as banks and financial institutions continue to offer loans at attractive rates, make sure that your loan-to-income ratio is within permissible limits.
2. Shorten it
A longer tenure typically offers lower EMIs – and tends to be more enticing. However, it is advisable to take a loan for the shortest tenure possible, because in a long-term loan – the interest outlay is way too much.
3. Own it
When it comes to repaying your loan, be disciplined and timely. No matter what the tenure of the loan, make sure you pay your EMIs on time. This will enhance your credit rating and score.
4. Don’t deviate
It is never a good idea to ‘borrow money to invest’. The interest you earn on the safest of investments, like FDs and bonds, won’t be able to keep up with the interest you dole out on a loan. Plus, the earnings from other securities, like equities, are far too volatile to rely on. You could potentially land up in a lose-lose situation.
5. Get backup
If you go for a car or home loan, ensure you take insurance cover as well. Simultaneously, you should think of investing in a term plan (of the same amount), so that there is no pending debt for your family in your absence.
6. Find your fit
Keep checking the market for the best loan interest rate you can possibly find. With changes in rules and regulations, lending rates too can change. But, if you do plan to switch loan providers, watch out for the prepayment and processing charges involved.
7. Read between the lines
Most people don’t take out the time to go through their loan policy documents carefully. But, it is imperative that you do. This will alleviate any unwanted surprises and expenses that can spring up later on. So, scrutinise before you sign on the dotted line.
8. Consolidate or substitutes
In case you have taken too many loans, it would be better to consolidate them under one low-cost loan plan. Alternatively, you can identify the high-cost loans and replace them with low-cost ones instead.
9. Prioritise funds
Don’t dip into your retirement bucket to fund other financial obligations. While you may be able to find other options to meet said obligations, there is no alternative arrangement to help you plan for your retirement.
10. Keep family in the loop
It is crucial that you discuss financial matters with the family, loan or otherwise. Any discrepancy in decision-making could impact the future finances of your household. Furthermore, your family members may be able to help you with your finances.
So, be sure to keep these ten things in mind before you apply for a loan. It can help you with hassle-free planning, as well as maintaining a healthy credit score.