Everyone needs money for their day to day life, to fulfill their requirements, their dreams and for their future. In today’s competitive world a person can never be satisfied with the amount of things and money he already possessed. He always wants more and more with his limited income. From there comes the demand for a loan.
Loan is nothing but a form of debt and with regular interest payment. In simple language loan is taking money from an individual or bank and returning it after a period of time with the pre-decide interest rate. If you need a loan, you just have to go to bank and tell the bank about your requirement of loan for example to buy a house. Bank will enquire about your financial condition and some more general information about you and can give you a loan to buy your dream home. But ultimately the property for which bank is providing you loan is of bank until you pay all the money back with interest to bank.
In today’s modern world it is relatively easy to get a loan from bank. If you have a good job or business and bank feels that you are able to repay the amount the bank easily give you loan. Loans are available not only to buy a house but you can also get loan to buy a car, to start your new business, child marriage, to fund your education, and many more. Many people take loans to finance their holidays even.
Due to easy availability of loans and never ending demand of things, peoples have stated taking loans very often without prior information about the consequences you have to face after taking a loan. If you are also thinking of taking a loan then wait a minute and ask yourself few questions. Where do you find yourself are you really ready for taking a loan? Since having a loan is a long time commitment with the bank or an individual you should think about it thoroughly and wisely that do you really need it. How you are going to pay back? Is your resource enough? Do you have a backup option?
Do you really think you can afford a loan, before taking a loan go through these several points that you should consider and you should know before going for a loan.
• First and the foremost point to consider is that are you taking a loan for a productive propose. Productive means is it going to yield you some benefits so that you can repay it. If you are going to take loan for buying home for living then taking a loan can be useful but if you are taking a loan for buying luxury car then it is not advisable. Many people now a day’s take loan for financing there holidays. Holiday is an unproductive work it’s not essential for living life it is consuming your money. According to me if you do not have enough resources to go for an expensive holiday go for a cheaper one. You can also postpone it for a time being and avoid taking a loan.
• Another important thing to consider before taking a loan is the type of interest rate, whether it’s fixed or flexible. Fixed means you have to pay a fixed sum of money which is pre-decided. Fixed rate do not change, don’t take the change in inflation rate during the period of your loan. On other hand flexible interest rate changes depending on the state of your economy it will take in to account the level of inflation in your economy. It will be beneficial for you if interest rate falls and it can be a disadvantage if it rises. If you are taking floating loan and interest rates hikes in futures then are you ready to pay that increased amount?
• Many a times there are hidden charges these can create a problem for you in future. People do not read the contract carefully before signing it and in the end it turns up with extra burden. You have to pay these extra charges because you are legally bound. Check the hidden charges properly before signing any contract, ask freely if you have any query about your loan do not hesitate.
• Taking a loan means getting into a long term contract with bank or an individual. You have to deal with it for a specific period of time, which involve a regular monthly installment. If you default in any of your installment you will be penalized with an extra amount which is generally very high. Think twice before taking a loan that will you be able pay installments on time?
• If you are unable to pay back the loan or you default in your installment regularly your market credit rating is affected. You will face many problems in taking any other loan further in your life. The title of being a defaulter will follow you where ever you go. Your low credit scores will affect your goodwill a lot. Your credit history is an important point to consider while you are taking a loan.
• If you have taken a loan against your property in the form of collateral the bank will cease your property if you will not repay the loan amount with interest. Bank can sell your property to raise the money that you owe to bank. You can even loose the property you already possessed while meeting your other contingencies.
• Many a time people took hasty decisions while taking a loan they do not take into considerations some very important points such as what if they met an accident, what if they lose their jobs, what if they suffer a great loss in their business how will you repay, have you created any backup option. In some rare condition if a person dies who is going to repay the amount, are you prepared for meeting such unaware consequences? You can go for loan protection insurance plan for meeting these types of extreme conditions.
Taking a loan can be a good deal or a bad deal varies from person to person but it is of great importance that you take time to review why you are considering a loan, what other alternative you can have of a loan and foremost what are you hoping to achieve from that loan. Loans are very helpful for person to meet emergencies but you should know how to manage them properly because you can get into trouble if you do not repay on time.
So if you think you really need a loan you can go through these various points before taking a loan and can avoid from being getting into any trouble.