You can borrow money to buy a house or car, pay for consumer appliances, renovate a house, and many other purposes. The next question is: Should we care about the reason for which we are borrowing money? A big yes, because loans should be used primarily for productive purposes. A loan to buy a house or car is a smart move as it increases your assets. But, borrowing money to pay for vacations or other luxuries is not a good idea. You can also use loans to pay recurring expenses such as utility bills, credit card bills, and, in some cases, income tax dues.
Every person should determine if a loan is necessary. Avoid paying interest over long terms. It is important to consider the following before you begin the process.
a) Who is eligible for loans/who banks will lend to -Technically, anyone earning a salary, either through a job or a business, can apply for gladloan.com. If the bank believes your income is not sufficient to pay the loan off, the bank may refuse the loan or offer a lower amount of funding. A bank will consider the source of your income, your ability to repay it and how recent you are when borrowing. Working with a well-respected firm can help you get a loan at favorable terms for salaried workers.
A bank loan is possible even if you don’t have a great credit history. A loan can be obtained by someone with a poor credit history, but at a higher rate of interest. A bank will lend to you if you’re young. Banks would love to lend again to those who have saved diligently.
b – The rate of interest –Individuals will often take a loan from the bank with which they have an account. Although it’s easier to get a loan from a bank that you already have an account with it might not be the best option. It is important to shop around before you make a decision on a bank. You can do a quick internet search to get an idea of the range of interest rates. Then, contact the bank directly for more information. If you have good credit, you can negotiate for a favorable interest rate. Banks will also compete to offer you a better deal. A mere 5% reduction in interest rates can make a big difference in your monthly EMIs, and the total loan amount over the years.
c -The ideal EMI % is the amount of your monthly income. Rarely is the gross income used in a lending decision. If you have a good credit record and have used the banking channels, there is a chance that every bank has preapproved a loan amount against you. You can view the amount approved against your name, and you can also inquire from the bank about the maximum loan amount you are eligible for.
Once you have established your budget, it will be easier to determine how much EMI you can afford. Your EMI should not exceed 30 % of your net monthly income. This is because you will be paying other bills. Ideal is to pay EMI equal to 10% of one’s net monthly income. However, smart management and judicious spending could allow you to stretch it up to 30%.
d. Looking at your credit score –If you’ve been denied a loan, or feel that the interest rates being charged by banks are too high, it might be worth getting your credit scores. Experian and CIBIL, India’s major credit bureaus, keep an eye on your credit scores. You can also request a copy of your report to help them. These credit reports are often used by banks to make a decision. However, every bank has different scoring and criteria. The report includes information such as your income, marital status, occupation, and any previous loans. Knowing what information is in your file can help you understand a lot about the bank’s borrowing process. If you have excellent credit, this can also be a bargaining tool.
e) What should you do if your credit report contains an error? While financial information from credit rating agencies is gathered from many sources and is generally accurate, there may be some errors. You can submit a complaint to the credit agency with all the required documents. This can usually be done online. It takes approximately a month for financial institutions to send credit information to the credit rating agency. There is a chance that your credit report may be inaccurate due to the delay.
If your credit rating is low, make sure you pay all outstanding debts on time.