First thing first, note down your monthly expenses
Whether you go for a 10 lakh loan or a 1 lakh loan, you need to understand your monthly budget and future financial commitments before deciding the amount you should take the loan for. How should I start, you may wonder. Always start with noting down your monthly commitments, which is unavoidable. Also, list down non-essential expenses you do in a month that can give you an estimate of how much you can save in a month and how much EMI you can afford.
Assess your future financial condition carefully.
This is an important step to consider before you apply for a loan, whether that is a 10 lakh loan or a 1 lakh loan. Carefully analyze whether you are up for an increment or promotion in the next two or three years? Or you are shifting to some other big MNC that will increase your salary. If your answer is positive, then you will be able to adjust a higher EMI amount or even take a higher loan amount to fund present needs. This might also help you save interest amount in the future.
If any, calculate your existing liabilities
It is might possible you have taken an electric appliance on loan or something else for which you are paying the EMI. Before you take any other loan, you need to ensure the proposed loan amount doesn’t put an extra burden on your existing salary. The right loan amount should give you some space to fulfil your existing liabilities and help you continue with your regular expenses without any dent.
Compare the interest cost offered by different lenders.
After deciding whether you require a 10 lakh loan or Rs 1 lakh loan, or any other loan amount as per your need, the next step is to check the interest rate offered by different lenders. This is an important step as this will determine the total cost of your loan. While some lenders will charge you every month while others every month, make an excel sheet of different lenders as even a percentage in the interest rate can significantly affect your loan cost. Once you have the final interest rate, you will be able to calculate your EMI obligation.
Select your lender very carefully
Almost every financial institution is offering personal loans nowadays. Amidst this, it is easy to get overwhelmed with so many options available. This is where you need to be careful and mindful, especially about those instant loan offers which continue to pop up whenever we are browsing something or sometimes in our spam folder. Approach this by selecting your lender carefully as this will have a huge impact on your future savings Conduct your preliminary market research using any loan aggregator website and compare the rate of interest of all available banks in India.
Start maintaining an emergency fund.
Many times one defaults on their loan EMI because of sudden unforeseen circumstances. COVID-19 has taught us that emergencies, especially medical ones, can arise at any time. To be ready when it does happen, having a good health insurance policy is important that can cover your hospitalization expenses. Along with the same, you must have an emergency fund to dip into during a financial crisis. Technically, you’re your emergency fund must have around six months of your salary. This way, you won’t default on your loan if something unexpected happens.
Apply for a smaller loan amount, if possible
If this is your first time applying for a personal loan, you might want to go on with a small loan amount, the one you are sure you will be able to pay off promptly. This way, you will be able to build your credit history as well. Once your credit score reaches 750 or above, you will be in a better position to apply for a larger sum of money.
Do not borrow for unnecessary expenses.
Before availing of any type of loan, do consult with your friends and family and see what they have to say about your fiscal discipline. If they can vouch for the fact you are quite good at saving for a rainy day, then it is a good decision to go for a personal loan. Remember taking a loan so that you can throw a lavish party or go on a foreign trip with your family is not an ideal choice and should be avoided at all costs.
EMI shouldn’t exceed 10% of your income
Irrespective of the loan amount 10 lakh loan or Rs 1 lakh loan you choose, the borrower needs to make sure it doesn’t exceed 10% of their total income, or else your other financial goals will take a hit. To find a sweet spot between loan amount, tenure, and interest rate, use the EMI calculator tool available on different banks’ websites to gauge the right personal amount you should take.
Your loan tenure should be as short as possible.
The term of loan repayment is inversely proportional to an EMI amount; the longer the tenure, the lower the EMI. Though it is very tempting to go for a longer tenure period, it is best to take a loan for the shortest tenure you can afford. In case you opt for a long-term loan, the interest outgo will be high as well.
Lastly, remember one thing.
Irrespective of the loan amount of 10 lakh loan or 1 lakh loan you choose, it is important to read through the fine print of terms and conditions carefully and understand various other costs associated with your loan amount. How much you will be charged if in case you choose to prepay the loan amount. What are the penalty charges if you miss the due date? Are some of the questions you should ask? Remember, a personal loan, even if availed without collateral, is still the loan, the money you owe to the bank. Use wisely, and you will be able to clear off major debts, or else it can push you down into a major debt hole.
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