The world of personal finance is becoming interesting day by day, even though it has always been a space to work in. Nowadays, taking a loan has become very easy & convenient and the reason is people are inclined towards it to manage their finances. From buying a house to starting a business or to counter an emergency, loans serve as the perfect option.
But, as they say, everything has its pros and cons, one must understand that borrowing money comes with responsibilities. Even though your agent or bank representative has guided you with clarity and authenticity, there are a few things that you should know about so that you can manage your loan wisely and avoid any kind of financial trouble.
1. Know About Your Loan Terms
First thing first, before you take any loan, make sure to fully understand the terms and conditions. If you’ve already a loan going on, you need to go through the loan agreement carefully. Pay attention to interest rates, whether they are fixed or variable. Know about the repayment period – how long do you have to pay it back? Can you afford the monthly installment amount without straining your budget? And are there any additional or hidden charges such as penalties for late payments or early repayment?
2. Pay EMIs On Time, Everytime!
One of the most important things to remember is to pay your EMIs (Equated Monthly Installments) on time. Do not leave any scope for late or missed EMIs as they can increase the total cost of the loan due to penalty charges. Doing this will also have a negative impact on your credit score. And if persists continuously, it can lead to legal action. That is why setting up an auto-debit for your EMI payments can help ensure you never miss a due date.
3. Keep Track of Your Outstanding Balance
It is essential to keep an eye on the outstanding loan balance. This helps you plan your finances better and can also help you determine whether you should consider prepayment options. You can check your loan balance through online net & mobile banking, monthly loan statements, or by contacting your lender directly.
4. Maintain a Good Credit Score
Almost everyone knows that credit score plays a crucial role in your financial stability. A high credit score can help you get loans at lower interest rates in the future, whereas a low score can make getting loans difficult and expensive. You can maintain a good credit score by paying your EMIs on time, avoiding multiple loans simultaneously, and keeping your credit utilization low.
5. Consider Prepayment and Loan Settlement Options
If you come across surplus funds, you might consider repaying your loan early. Prepayment can reduce your interest burden and help you close the loan sooner. However, some lenders charge a prepayment penalty, so check the terms before proceeding.
In case of financial difficulties, you may explore loan settlement options with your lender. Loan settlement allows borrowers to negotiate a reduced final payment to close their debt.
6. Avoid Taking Unnecessary Loans
It may be tempting to take another loan when you see an attractive offer, but borrowing more than necessary can lead to a debt trap. Always assess whether you genuinely need the loan and whether you can manage the repayments before borrowing further.
7. Keep Your Financial Documents Organized
Staying organized is always a good thing and that fits perfectly when it comes to personal finances. You should maintain a proper record of all loan-related documents like loan agreements, payment receipts, and bank statements showing EMI deductions. Proper documentation comes quite hands in case of disputes and ensures you have proof of payments made.
8. Watch Out for Hidden Fees
People tend to focus only on the interest rate and EMI while taking a loan but forget to consider, or about any additional charges. You should be aware of elements like processing fees (usually deducted from the total loan amount), prepayment penalties or pre-closure charges, and late payment fees. Always ask your lender about these hidden charges before signing the loan agreement.
9. Loan Restructuring in Case of Financial Difficulties
If you are struggling to make repayments due to job loss, medical emergencies, or other reasons, contact your lender immediately. Many banks offer loan restructuring options, such as extending the repayment tenure or reducing EMIs temporarily, to help borrowers in difficult times.
10. Be Aware of Fraud
With the rise of so many money lending platforms, loan scams have become more common. It is highly advised to always borrow from a reputed bank or financial institution. You can detect fraudulent lenders: if they are asking for upfront payments before loan approval or promising guaranteed approval without checking credit history or using unprofessional communication channels.
