Power of bank loan

Use it judiciously for your own interest

SAJJAD BAZAZ
Srinagar, Publish Date: Jun 12 2018 11:19PM | Updated Date: Jun 12 2018 11:19PM
Power of bank loanRepresentational Pic

Gone are the days where taking a loan from banks was seen as a mark of disgrace. This view stands radically changed. The fast growing consumerism coupled with emerging sea of personal needs has forced almost all segments of population, especially the young generation to embrace life on a bank loan. Precisely, a bank loan has become a faithful companion to individuals as well as families. Today instances galore narrating that loans extensively used, particularly by the younger generation, to realize their growing aspirations. 

We come across a breed of young borrowers whom we can call ‘veteran borrowers’. They were early birds to take route of a bank loan when they were simply students. Their first loan was for their education. Then they borrowed money from banks either for their self employment venture, some personal needs or for negotiating mounting wedding expenses etc. Then they looked forward to a dream house and started realizing it by taking route of home loan schemes. Their fair dealing as a borrower earned them a status of ‘most preferred customer’ from their banks.

Precisely, loans, particularly the personal loans, have become most dependable resource for individual and families to meet their various goals ranging from education and house to cars, laptops and smartphones. These loans are getting easy to get if the borrowers repayment history in case of earlier loans shows no default in monthly equated installments (EMIs). So based on existing financial dealings with your bank will make it easy for you to borrow more money from the bank. However, the parameters like a consistent income record adequate documentation etc.,  would also form the basis for sanction and disbursal of any loan.

 

 

One of the wonderful features of today’s loaning system is the option given by banks to break down their purchases through credit cards into EMIs. Thanks to the technology that you would be able to avail instant EMI facility while purchasing a mobile phone, any home appliances, furniture or even travel tickets by using your credit card. Different banks have different options for such facility. So, before using this option of breaking your online purchasing through credit card into easy installments, ask your bank about the terms and conditions governing this facility.

Now the important thing you should concentrate on while boarding on loan platform. You have to ensure that your borrowing is prudent and need based. You should not err into borrowing just because loans are easily available. Too much of borrowing can leave you in difficulty in repaying a loan. It’s important for you to consider your income before raising a loan. Never go beyond you repayment capacity. Normally, 35 per cent of income going to EMIs is considered reasonably good in financial planning.

One more thing to have a look while taking a loan is the cost at which it’s available. It’s a usual scene at a bank branch that a borrower gets influenced through easy access to the loan facility and hardly negotiates rate of interest with his banker. Otherwise, one of the major components of a loan is the rate of interest at which it’s made available to a borrower. 

There are many loan schemes especially in personal segment where a borrower ends up paying more than double the amount of loan (principal amount). Let me explain. Suppose you have taken a home loan of Rs.20 lacs and your repayment along with interest of 9.50% runs through 20 years. That means your equated monthly installment is Rs9321. After 20 years of repayment in EMIs you repay over Rs22 lacs, meaning thereby that you have paid over Rs 12 lacs as interest.

You can reduce the burden if you try to get your interest rate on loan reduced. Or you can take route of saving instrument to lessen your loan burden substantially even in the event of sluggish interest rate on deposits.

Meanwhile, let me share some important tips which you should follow while obtaining a bank loan. Ensure total EMI of your loans remains within the range of 35 to 40 per cent of your take home salary. Examples galore which suggest that anything outside this range puts a borrower into a debt trap. Don’t get lured to small/affordable EMIs. Always remember that your monthly budget and cash flow position is always changeable under the circumstances of repaying a bank loan. Check you net income (inflow) and expenditure (outflow) and the difference between the two will give you the quantum of your cash reserve.

Precisely, the power of a bank loan has two sides. It can either bring prosperity to you or leave you in a debt trap.

 

 

(The views are of the author and not that of the institution he works for)

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