Month: August 2016
Personal loan can be one of the options when a person gets strapped for funds, it can help in closing the budget gap or meeting an immediate financial requirement. Whether it’s for house renovation, covering medical and educational expenses or paying off existing debts, a personal loan can be considered an ideal solution. However, with myriad of loans present in the market and each of them claiming their competencies, how would you make sure that you do not end up in a huge loan liability? So before signing on the dotted line, here are some personal loan mistakes that should avoid.
Not knowing your affordability
Most people tend to overstretch their finances by borrowing beyond their affordability. This situation could lead to financial crisis and default on payments, which will ultimately affect the credit report of a borrower. So it’s better to apply for a loan only when you can afford the monthly loan EMIs and other expenses.
Not doing a market survey
Before deciding a lender, it always pays to do a market research of what other lenders are offering. Compare the interest rate, prepayment clauses and other charges offered by other banks and choose the one that is suitable for your needs.
People often forget that personal loan is not the only option they have. A borrower should always compare and analyse key features, rate of interest, loan tenures, terms and conditions of other loans such as gold loans, loans against property, top up loans etc. before going for a personal loan. You can use the online loan aggregator sites for comparing the loans and choosing the right one.
Not choosing a familiar lender
Approaching a familiar lender or banker might work in your favour because they would be already familiar with your credit worthiness. It would also enable easy disbursement and quick loan processing. And probably it would get easier for you to negotiate on the interest rates and other charges of the loan.
Choosing longer tenures with low EMIs
Longer tenures seem like an easier repayment option but as a matter of fact, shorter tenure with higher EMIs are more cost-effective as compared to longer tenures with lower EMIs because the total interest pay-outs are lower. But before deciding the tenure, repayment capability and monthly budget should be taken into consideration.
Neglecting the fine print
Do not forget to read your loan agreement thoroughly, know everything about the interest rates, processing fees and other hidden charges. Clear every query related to the prepayment clauses. Banks generally do not offer pre-payment facility in the first six months and charge pre-payment penalties. Ensure that all your doubts get clear before taking the final decision.
Taking multiple personal loans
Taking multiple loans will increase your loan liability and would affect your loan eligibility. As the lenders would check your credit report which will show them that you are already occupied with several loan EMIs and granting another loan to you would rather be a risk to them. Hence they’ll avoid sanctioning loan to you, and if they do it, then your loan will possess higher EMIs which would ultimately disturb your financial picture.
Not being aware of credit score
Being financially disciplined client really pays you well and it makes sure that you have a good credit score. A person with good credit report is considered a good client and therefore the chances of getting loan approval are higher in that case. Be aware of your past credit records.
Personal loan comes with a flexibility to use it for any kind of household or personal financial requirements. Having said this, a borrower must understand the fine line between necessary and lifestyle based requirements. Considering the high interest rates and other charges of a personal loan, it is advised that a person should opt for a loan only when there is an urgent requirement of funds that cannot be postponed. It’s better to look at other options too before taking a final decision.
Buying a home is a dream for many but only a few individuals can actually make their dreams come true. Home loans have been specifically designed to let you make such dreams come true without having to pay all the money up front. However, once the loan is approved and disbursed, the bank expects you to pay the EMI due till the tenure of the loan ends. If you fail to pay the EMI on time because of losing your job or perhaps due to a medical emergency, you will become a loan defaulter and bank will initiate the process of taking over your property and selling it through an auction to recover your loan amount. Thus to provide a solution to this problem, we have listed a few things that you can do when unable to pay your home loan EMIs:-
- Negotiate: The foremost thing that you must do after becoming a loan defaulter is to negotiate with the bank over this issue. The lender will always be ready to talk with you about this issue as they find it the easier way to resolve the problem rather than going through the tiresome process of taking over your asset forcibly.
- Ask for a grace period: You can ask for a grace period from the bank to pay the loan. You can clearly explain to them the reason as to why you have not been able to pay the EMIs in a timely manner. Banks sometimes give loan defaulters the grace period for resuming EMI payments with some penalty.
- Go for loan restructuring: This is an apt solution when your home loan interest rates have been escalated and you may not afford the increased EMI. As part of the loan restructuring, the lending bank will increase the tenure of the loan upon which, your individual EMI payouts would go down. Though this will result in you paying more, it will be better than losing possession of the property.
- Seek assistance from credit counseling centers: There are many counseling centers available in many banks that may help you with this issue. They will provide you the appropriate solution of your problem by giving the fair knowledge of the thing that you should do to keep you away from being snared in a debt trap.
- Liquidate your investments: If all the aforementioned options fail to work, liquidating your investments is the last option that can come to your rescue. You can liquidate your existing investments such as deposits or mutual funds to pay the EMI’s. In case you have a life insurance policy such as an LIC policy, you might try to get a loan against the policy. You can then use this amount to make part payment for the loan which will reduce the constantly increasing EMI’s. There is no harm in doing this as it will keep you defaulting on your home loan. Besides life insurance, equities, fixed deposits or other savings can also help you get a secured loan.
- Last Option: When you are left with no other option than to sell off your prized possession in order to pay off the home loan amount, make sure your property is sold at a good price. This will not only help you pay the debts but you will also be left with a bit of extra cash at your disposal if the resale value is greater than the original loan amount.
Conclusion: These are a few of the top options you have in case you are unable to pay your home loan due to whatever reasons. To avoid getting into such situations in future, make sure you have at least 4-5 months of expenses that should be kept aside for the emergency purpose. Besides you must also have individual health insurance and critical illness policies for you and your family that will pay for the sudden medical crisis, during unemployment or in any other adverse situations.