INTEREST BURDEN ON HIGHER COST LOANS

The increased per capita income in our country has paved way for a better financial flow in a middle class family, which in turn has led to a comfortable living style.  Loans are available from various sections of society, which has otherwise paved way for achieving better financial goals, even with limited means, through loans from Banks and other credit institutions.  While availing loans, it is equally necessary for the customers to learn the nuances related to effective management of such loans.  Here are some points to be taken care during such times.

  1. Before applying for a loan one should understand that it will have long term implications on their finances.
  2. Thus, the actual loan requirement and the repayment capacity of a person are two important factors which should match upon.
  3. A person, who may be eligible for a higher loan, should never get tempted to avail more when his/her capacity to repay does not match with the income thereon. There are several online portals, through which one can get educated these days. They educate you through EMI calculators and thus give a ready to use data which will be handy. While calculating the repayment amount adjust the period and the repayment amount to exactly fit in to your capacity to repay.  Thus, you can arrive at the exact period amount through the calculator.
  4. Different financiers would be providing loan at different rates. Always ensure to calculate your repayment obligations using the highest interest rate, since interest rates are changeable as per market conditions and this will be useful in arriving at the correct position of your exact financial standing.  Beware of Credit Card Loans which attract the higher interest rates.  Hence avoid taking Credit Card Loans.  Prompt payment of Card dues on the due dates is very much necessary and brings you financial relief.
  5. Before applying for the loan thoroughly go through the documents of various financiers, understand the intricacies involved therein and you will understand that loan cost is not the only factor fed in to the system while calculating the repayment obligation, barring which there are also other ancillary factors which are included in the charges, which one can understand only by going through the schemes fully and carefully.
  6. Try to understand the rate of interest charged on different loans. For example loan against deposits, Shares or Gold are available at lower rates and personal loan will be the costliest loan.  Hence, before availing take the various factors into account and go for the right type of loan and thus ensure to minimize your interest payment.
  7. Maintaining a healthy Credit Score is very important. Higher the credit score, lower will be the interest rate offered.  Timely repayment of EMIs will keep the credit score intact.  Irregular EMI repayments will result in a low credit score and ultimately disqualify for availing any loan in future.
  8. While appraisal of loan papers, it is essential that additional income if any generated be revealed so that the possibility of getting a better loan and credit score thereon would be on the cards.  Hence it is essential that income generate either through bonus or spouse salary or rentals or other sources may be provided to the financiers, which would only make the proposal more viable and strong.
  9. Any additional amount or money received during a year may be paid towards the EMI so that the interest burden and the EMI structure in some cases would come down and thus provide a cushion for your future money flow.
  10. It is very necessary to prioritise your loans. If you have multiple loans, it is essential to liquidate the high interest bearing loans first, before other loans are taken up.  This will bring down your interest burden considerably.
  11. Ensure to buy insurance cover for your personal loan. Insurance will take care of your loan outstanding, in the event of your meeting with an unfortunate death or accident.  This will save your family from taking over the loan burden and the insurance claim would cover your loan outstanding.

Normal Interest rates on Various Loans:

Various loans normally attract the following interest rates.  This is only illustrative and would vary from bank to bank and other lenders.

S No

Product Interest Rate (%)

1.

Credit Card 22.00  –  48.00

2.

Personal Loan 14.00 –   20.00

3.

Auto Loan   8.60 –   16.25

4.

Home Loan   8.35 –   11.75

 

Author: Admin Bankedge

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