10 Golden rule you should follow while taking a Personal loan

Feb 26 2020 04:34 PM
10 Golden rule you should follow while taking a Personal loan

“Personal loans” is a term heard consistently in the modern world. It is the best tool to bridge the gap between the spending capacity of people and the higher cost of their assets and liabilities. In short, when you need a significant amount of money quickly during a cash crunch, personal loans are the most exceptional help. The major disadvantage of these loans is that they are unsecured. The money lenders in case of personal loans rave about their services through online advertisements and billboards. Technology helps lenders to reach every individual separately. Things become tougher today as people get SMSs, phone calls, and e-mails of lenders claiming about their low-interest rates or quick disbursal. As an educated and responsible Indian citizen, you are expected to verify the authenticity of such lenders before taking the loan from them. 

What maximum efforts can you put to secure your loan? Follow the below-mentioned rules and escape the debt traps of personal loans:

  1. Research and compare all the personal loan schemes before opting for one: Personal loan lenders come up with different ideas to attract the customers. But never get impressed by the ad statements. Have proper knowledge of interest rates and type of interest on the loans. After exploring the market online as well as offline, choose the lender with considerable reputation providing reducing and lower interest rates, along with flexible tenure. 

  2. Borrow a limited amount from the lender: Don’t exceed the limit of borrowing money. In short, borrow what you can afford to return. Exceeding these limits will get you into debts. Ultimately, your credit score will get affected, and this makes it difficult for you to get further financial help from the market. Follow the thumb rule that the EMI must never exceed 10% of the monthly salary so that you do not fall short of finances to meet your routine needs.

  3. Make the repayments timely and religiously: Late payments result in penalty charges and spoil your CIBIL score that represents your financial history and credibility in the market. This indiscipline action makes it difficult for you to borrow money from the lenders in future. So, never be late in your paying your EMIs.

  4. Select the shortest possible tenure for loan repayment: Longer tenures are always alluring as they display smaller EMIs. But never fall in this trap. Always choose as short tenure as possible for repayment of the loan. When you pay longer tenures, you end up paying more interest compared to your principal amount. While choosing shorter tenures will result in high EMIs but lesser amount of interest.

  5. Insure your large loan amounts: Insure your loan if it is a vast amount. The insurance company will take the responsibility of paying your loan in your absence. The insurance companies pay your debts in case of job loss, significant accidents, death, and permanent/ temporary disabilities. Secure your family just in case you are not available or are unable to pay the loan.

  6. Read and understand the final loan agreement thoroughly: Borrowers have the worst habit of signing the loan agreements in a hurry. But always remember that the contract contains all the terms and conditions related to the loan. It won’t take more than 30 minutes to read it thoroughly. Missing this step can bring difficulties for you in future when any unexpected changes pop up regarding the loan. 

  7. Never think of investing the amount of personal loan: When you spend your money in the investment channels like stocks, shares, bonds, etc. there is always a risk of returns. If you take the loan for the investment amount, you need to ensure that the returns of your investment are higher than your EMIs. This is a difficult task to handle, and so you should never take loans for investments.

  8. Make prepayments according to your convenience: Save some money from your earnings and use this for prepaying your loan amount. Prepayments can reduce the amount of interest you need to pay over the principle. The saved interest amounts can be further used to pay remaining EMIs. 

  9. Close the ongoing personal loan before applying for the next one: Don’t keep applying for loans before closing the previous ones. However, if you have the last loan with higher personal loan interest rates, then taking a loan to consolidate that debt will help you. This can also help improve your CIBIL score with time. Don’t take up multiple loans otherwise. 

  10. Don’t hide any detail of the loan from your family members: Though it seems awkward, this rule is the most recommended among all the rules mentioned in this article. When your family knows about the loan, they restrict their expenses considering the EMIs. They will understand your situation, and you will get emotional as well as financial support to repay the loan.

Take away

Your happiness and peace are what matters at the end. Therefore, follow these rules while taking a personal loan. And stay out of financial as well as a social crisis. 

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