Overview
Financial aid for buying consumer goods, wedding arrangements, holidays, starting up a business, offered by a bank is termed as a bank loan. It does not require any collateral (security against loan) and can be paid according to your convenience of time required.
However, when you are a first-time applicant, you must consider how you are going to pay and how will you do so.
Below are the few factors that are the basics to consider before to think of getting any kind of loan for yourself.
- Affordability
You should always calculate how much of your earning is left after taking care of all your needs, like household bills and other payments. The remaining amount is what you can afford to pay your monthly instalment for the loan. Usually, most of the banks incur 40-50% of your income, exclusive of perks and benefits. This makes it easy to calculate how much will you be using for repaying the amount.
- Eligibility Criteria
Many banks and other lenders have a different set of eligibility criterion. It is possible to get your loan approved if you have a permanent job or earning, for every month, as it reduces banks liability. On another hand, when a self-employed individual applies for a loan it may or may not get through. This is because banks do not want to invest on individuals who have erratic income and are unable to pay their dues on time.
Also, they consider the number of dependents you have, as it decreases your EMI paying capacity. If you have someone as co-applicant, even then that person should not be a minor and have a steady income. This gives you the advantage to get more amount approved.
- Rate of Interest
Most of our EMI payments comprise of interest that is a levied percentage on the principal amount. There are two types of rate of Interest (ROI); fixed and floating. Fixed interest remains constant throughout your tenure of the loan payment, or first 5-10 years of payment. Floating ROI fluctuates or changes according to RBI norms, government policies or market conditions. If you think the ROI is at the lower margin, then pick up fixed ROI and it will only increase with passing days, or otherwise opt for floating ROI. There are other sources like non0benfit community groups, which offer loans without levying much of interest rate. So if you have the amount of loan and these groups offer fast approvals with much lesser interest rates.
- Tenure of loan payment
This completely depends on the amount of your loan and affordability. If you look out for a higher loan, then you will have to look for a longer term EMI payment, with higher interest rates. This way you end up paying more on your interest rate. But on the other hand, for a lesser term, you will have to pay higher EMI and lower interest rate. But this depends on your affordability to repay every month. If you opt for the longer term, you can choose to make few payments earlier to cut-short your loan tenure. The penalties for early payment have now been withdrawn by most of the banks or are negligible.
- Credit Score
Whenever you apply for a loan, the bank or lender cross checks your credit score with Credit Information Bureau (India) Ltd (CIBIL). This organisation maintains your credit score as it tells how much worthy you are to get your loan approved. They give your score between 700 to 900, based on your credit card bill payment, cheque bounces and how you maintain your bank accounts. If you score more than 750, you are likely to get your loan approved without any hassles.
- Extra facilities
Do a comparative study between a number of banks or lender, and see who offers you a good deal of facilities. There are many banks that give you 3 EMI free months and also sometimes, the rate of interest is lowered during the end payments. There are other facilities that you need to for like nil foreclosure, flex schemes and part payment. Choose a source of the loan according to what suits your needs of payment.
- Other Liabilities
If you are an individual who is already paying for some loan, then stop and think before applying for your next loan. You may not find it logical during a point of time, but when the payments become to pile up, you may want to go back on your decision.in other words. Do not use your whole income for payment of loans.
Another advantage of opting for a loan is that you can avail tax benefit, that is only imposed upon the interest amount paid with the principal amount. So the longer the tenure of payment, you can file for tax exemption.
Choosing a bank or lender for loan approval needs more research, much comparative study and only make a final decision after knowing which factors best fulfill your criteria for repayment of the loan.