Five Rules to keep in Mind after Your Loan is Sanctioned
Loans are best to overcome the financial crunch we face at different points in life. With the plethora of banks and NBFCs offering loans at affordable rates and exciting offers, availing a loan has become very easy. There prevails a common perception that once the loan is sanctioned, our job is done. However, in reality, there comes a huge financial responsibility once the loan is disbursed. So, if you have recently availed a loan (any loan personal loan, home loan, business loan, loan against property etc.), you should keep the following points in mind:
Never miss your loan EMI: Whenever you avail a loan, there comes a huge financial responsibility of repaying the loan. Loan is borrowed for a specified period of time referred to as tenure, you have to pay monthly EMI during the loan tenure to repay it. Paying all your loan EMI on time is very important. As, if you pay late or miss your EMI, it is recorded in your credit report. This makes it difficult for you to secure any loan in the future. Hence, you must pay your loan EMI on time as it helps in building and improving credit score.
Never use your savings to repay loan: We all invest a part of our income in different saving schemes like mutual funds, PPF, fixed deposits, etc. Savings are done to meet the unforeseen contingencies in life. So, you should never use them to repay any of your loans as this will make it difficult for you to overcome a cash crunch in the future when you might not have any regular source of income. Without a regular source of income, getting a loan is very difficult as well.
Avoid taking additional loans while a current loan is active: These days banks offer attractive loan offers to lure customers. But we should not apply for a loan if we already have a running loan, as it only increases our debt liability. You should always apply for a loan as per your repayment capacity, as applying for loans beyond repayment capacity might lend you in a debt trap. Besides an added financial burden, having multiple loans, especially unsecured loans, affects your credit score. So, first repay your existing loan and then apply for a new loan.
Make prepayments when you have surplus money: Everyone comes across surplus income in life. This surplus income may come from an increment in salary, windfall gains like a lottery, returns on investment etc. You can use this additional income to prepay your loan. Prepayment helps in saving on the interest payment and, in addition, eases off your debt burden.
Take an insurance cover for the loan amount: Some loans are of very high value like a home loan amount is usually over and above Rs. 10 lakhs. It is a huge loan amount and takes years to repay it. As life is very uncertain, it is better to take an insurance policy which covers the loan liability in case of the borrower’s death. It implies in case of death of the borrower, the remaining amount is to be paid by the insurance company.
Hence, where a loan helps you to overcome a cash crunch, it is very important to manage it effectively. Keeping the above points in mind will help you in effectively managing the loan after it is sanctioned.