5 Tips to Take Loans Wisely

Today buying a vehicle, owning a home, applying for foreign exchange programs, studying abroad, paying utility bills, or even taking a month-long vacation to see the world is a possibility that it used to be earlier. All thanks to the different types of loans including a vehicle loan, home loan, student loan, payday loans, personal loans, etc. that are available to finance your requirements at the right time. Moreover, availing loans these days are much easier and faster than it used to be when the concept of the lending system was introduced.

However, just as all other financial systems, availing a loan needs to fulfill certain criterion, which will otherwise result in rejection of the loan application. In addition, you need to use your discretion in order to avoid mistakes or make incorrect judgments while applying for a loan. Saying so, here are some tips that will make your loan availing process smoother and help you to avoid some of the common mistakes that people generally encounter while applying for loans.

Do a reality check on your repayment capacity

What is borrowed must be returned. This is the first and the only rule in borrowing. Similarly, when you even think of applying for a loan, the first thing that you must consider to do is critically evaluate your loan repayment capacity. If you think that you will not be able to repay your loan by all means, then do not apply for a loan. Therefore, it is important that you strategically plan your loan repayment and have a backup plan in case things go haywire. For example, overstretching your loan may often result in underpaying, which is a very dangerous affair. This is because overstretching your loan will lead to disruption of your long-term investment plans and loan EMI defaults, whereas underpayments will result in longer periods of the loan and higher interest payouts. Therefore, as the first and foremost checkpoint in your loan application process consider your lifestyle, your daily expenses, personal financial responsibilities, present debts, current investments, and your financial goals to have a good understanding regarding your loan repayment capacity.

Always ensure to check your credit score and credit report

If you have been closely monitoring your personal inbox or junk mails, you will find that all the companies that advertise for a loan application mention a line or two about your credit score. A credit score is a label that mentions how reliable you are as a person who would repay his/her loans on time. Moreover, it gives you an idea of the amount of loan you are eligible for and the extent of loan flexibility you can seek while availing a loan. Hence, make it a habit to check your credit score and your credit report because there may be times when there is a discrepancy in your credit report. For example, you must have closed your previous loan or know for sure that your earlier credit card is closed. However, due to the fault of your previous lenders who fail to update this information in their system, this might reflect badly in your credit report and hence you will now be eligible for loans of lower value and poor loan conditions or may even face loan rejection. Therefore, it is your duty to ensure that you have your credit report and overall credit score checked out even before applying for a loan so that you ensure the entire process happens without any delays.

Do not take a loan to invest elsewhere:

Some people have the tendency to apply for a payday loan or a personal loan to invest that amount elsewhere such as in speculative markets. While some take a new loan to close an existing loan. Both these practices are not considered good because this results in over-burdening yourself with more financial liabilities. In addition, such acts are very risky and incur higher interest rates, ultimately landing you in a bigger mess.

Do not hide your financial debts

People say never lie to your doctor or your lawyer. If you do so you get either get yourself killed or hanged. Likewise, it is best not to lie to your bank or lending organization because this could also land you in an unpleasant situation. Sometimes borrowers deliberately fail to mention details about their existing debts, financial repayments, and other liabilities because they believe that by doing so they will be eligible for a larger loan amount. However, this might be true but on the other hand, you end up being in trouble in addition to being rich, which is like putting yourself in an ironical situation. Moreover, if your lender refers to your credit reports, then the whole deal is off the table and you could be blacklisted thus crushing all hopes of availing a loan. Hence, do not misinterpret or misguide your lender.

Compare different loan offers and other alternatives to loan

There is so much to loans that people fail to understand. For instance, if you have a fixed deposit in your bank, you could avail a loan against your deposit rather than availing a personal loan that is offered at a higher interest rate. Moreover, today offers and discounts are not limited to cloth shopping and electronic goods. If you check the internet, then you can find some good deals from different lenders in terms of interest rate, payback period, reward points, etc. Hence, it is advised to invest some time in researching the loan market before you make your decision in haste.