This article has been contributed by Riddhi Kharkia, with inputs from the entire team.
So, we were thinking really hard to find a topic that would be fun to write and at the same time, be appealing to our readers. To be precise, we were breaking our heads over this thought with a small glass of hot “cutting chai” and delectable “maska pav”. As if it was, my attention swayed to a young guy, who was requesting the eatery manager to spare the payment for time being, and promising to clear all the dues by month end.
EUREKA! There it was.
I got a simple and interesting topic for my next series of articles: “Credit/loans”. To think of it, the arrangement between the manager and that young guy (No, it was not someone from the Fintuned team :P) is nothing but a credit scheme, which in popular parlance is known as “Loans”. Here is a noteworthy article that discusses the history of loans, in case you are at all interested!
Investing in future is expensive. Be it a home or a car, you have to go an extra mile to get that big-ticket item. And this is where loans come into the picture. If you have never borrowed, you might not know how to get a loan. Though it may seem easy, but certain factors should definitely be kept in mind before opting for loan.
So, let’s get started about the loan process from start to end. (But, we have kept it short and sweet)
Figure out what you need, why you need and from whom you need.
I am highlighting this just to bring to your attention that YOU have to repay the loan with an additional cost INTEREST. Thus, taking a loan for something that adds to your assets makes sense. Taking loan for a vacation or for luxuries, will put burn your pocket.
These are the general loan types:
- Auto Loans
- Home loans
- Personal loans
- Business loans
- Education loans
In any case, using a loan that matches your need will improve the chances of getting the loan while keeping the costs low.
The idea is to shop around once you know what type of loan you need. Banks are a good traditional place to shop for most loans. Check with several institutions and compare interest rates and costs. You can also try peer-to-peer loans, using a website with multiple lenders or somebody you know to fund the loan. Just make sure you put everything in writing so everybody’s on the same page — especially if you borrow from friends or family.
Understand your credit. Don’t be surprised if a bank does a background check on you. This involves checking history of your previous loans (if any), your repayment history, income, assets, marital status, and occupation among a host of other information. Every bank has its own criteria and in-built scoring systems. Once you develop a strong credit history, lenders will lend you more and offer better rates. In India, major credit bureaus like CIBIL or Experian keep a tab on your credit scores.
*P.S. Be sure to fix any mistakes in your credit files, as they’ll hurt your chances of getting a good loan.
Understand your Loan. Before you get a loan, take a look at how the loan works. Everything in the world comes with terms and conditions, so does a LOAN. Some of the items that vary with the loan are:
- Interest rate
- Tenure of the loan
- Method of repayment – Monthly or all at once
(We will take this up in a series of articles that will follow this introduction)
Interest is the premium that you are paying to the bank for using their money, so lower interest rates is better for borrowers. Even half a percentage reduction in interest rates goes a long way in reducing your monthly EMIs and total payout of the loan over the years. The tenure is the amount of time you will be paying the loan, so once again, a smaller number is better. (Idhar, chota hai toh behtar hai :P)
To be honest, this is a preliminary article and the idea here is to give you an overview of loans and the basic elements that you should watch out for. Over the period of next two months, I will keep coming out with articles that will cover the topic of Loans in greater detail.
So, watch out for the second in the series, next week!