The world is full of opportunities, so it’s essential first to be aware of what is available at your disposal and then do the filtering. Let’s understand what do the loan and its various types mean in layman terms. A loan would mean to borrow- some amount of money, goods, property for now and pay in future an actual sum agreed along with an accumulated fee or interest for borrowing. It comes in the form of open-ended loans-to borrow multiple times with a fixed credit limit (credit cards). Closed-ended loans- same loan cannot be re-borrowed once repaid (personal loan). A secured loan would have a pledge of an asset as collateral to compensate in case of default payment and low-interest charge (mortgage). Unsecured loan won’t have collateral in place, but the interest rate would be high (bank overdraft). Other types would be term loans (short, medium and long-term) by fixed or variable interest rate, gold loan, student loans, home loan, business loan personal loan, vehicle loan, property loan, policy loan, etc. Now that basic is covered it will be easier to understand the top 5 factors to consider before opting for a loan.
1) Is loan a necessity?
Analyze whether a loan is required to serve an emergency purpose or to splurge if not savings should be exhausted first and explore other feasible options before considering a borrowing.
2) Are you capable enough to pay back regularly and on time?
Lenders assess your ability for repayment of loans so doesn’t go overboard when your income is lower than borrowings made. Always opt for available and short-term loans and don’t miss the payment.
3) Capital investment and Collateral:
How much of contribution are you willing to provide in the form of down payment or what assets can you pledge for security in case of default is what lenders consider as a serious interest before a loan is granted.
4) Strong credit history and score is a must:
Basically, character or financial history of the borrower is observed by referring to the credit score to know the status of the total debt, credit limit, bad accounts and default payment for loan eligibility.
5) Beware of the Conditions, loan-fee, TRA and APR:
Adopt a practice to carefully read through the loan documents to know if lenders have included clauses in contract with charges like loan processing fee, late payment fee, early payment fee, failed payment fee. Comparing the total repayable amount with the annual percentage rate of interest will help to understand the amount to be available from loan applied.
Apart from the pointers mentioned it’s also important to find out various options available in loans and where to find them. To keep your near and dear ones educated about your loans, ensure the privacy of your loans is adhered by the lender and taking insurance cover for bigger loans would be an added advantage.