Modern technology has changed the way we work or communicate and even how we entertain ourselves. Complex fields like finance and banking too have used technology to reach out to customers and prospective clients. An email, a phone call or an SMS offering us a loan or an attractive deposit scheme is common nowadays. We are promised lowest interest rates or high loan amounts or fast disbursals or even zero processing fees.
Emergency funds can be raised through various sources like taking loan against property or applying for a personal loan. While choosing the latter, it is advisable to follow the below commandments and avoid making mistakes:
1. Borrow only as per requirement: While the borrowing process has eased up considerably due to online processing, it doesn’t mean that one should borrow without a strong reason for doing so. There will be other monthly expenses that you will have to fulfil so ensure your personal loan EMI does not become a burden every month.
2. Ensure timely repayment: If there is a delay or default in pay the EMI, it will reflect on your CIBIL score which reflects your credit and financial history. You may not be offered home, vehicle or personal loans if your CIBIL score is below par so ensure that your personal loan EMIs are made promptly and the loan is closed as per the given tenure.
3. Choose a short tenure: We often feel that a lower EMI will be a lesser burden on our expenses but by doing so you will end up paying more to the lender. The shorter the tenure, the lesser is the interest amount paid to the bank. So choose wisely.
4. Read the fine print: In our eagerness to sign the document and initiate the loan process, we often ignore the fine print mentioned in the agreement. The terms and conditions mentioned in the agreement, though tedious, should be read before you sign on the dotted line. This ensures that it does not spring up any surprises in the future.
5. Never borrow for investment: Since personal loans are unsecured loans, they are offered with a slightly higher rate of interest. If they are used for investment in shares or mutual funds, you will have to ensure they give you higher returns so that you profit from it. Paying EMIs will then become difficult if the interest earned is lower than what you are paying to your lender. Keep investments and loans away from each other as both serve different purposes.
Other methods of reducing outgoing amounts monthly is to opt for balance transfer credit cards whenever possible. Choose a comfortable EMI by calculating it before you opt for it and you should sail through comfortably through the tenure of the personal loan.