Be Aware of Loan Seducers ~ Instructions for Loan Borrower in USA / Fresh loan to repayment:
In Loan sector several fraud Loan lenders & Non-banking financial companies offering Free Credit Reports, Low Teaser Rates, No Loan Application Fee and fast approvals are doing everything they can. From bank to nonbanking financial companies including other non-registered loan aggregators today attracting new loan borrowers & this has become a smart profession in Loan sector among European countries.
Hereby the loan aspirants are informed regarding some useful key points to note while seeking Loan in American Countries.
Borrowing Loan Easy or Difficult in USA
Any loan borrower today can apply for a Personal Loan Online and soon he/ she can get the loan amount in account in a matter of minutes.
Getting a loan on easy terms today is not so difficult if borrower ensures that the loan is going to be brought for a right reason.
If loan borrowers tries to grab the loan just because of interest rates are attractive & could give tax benefits he/ she might get a Financial pain.
Here we are suggesting some thumb rules to follow while going for a loan.
Suggestion 1- EMI SHOULD BE AFFORDABLE
The loan EMI should not push you into a corner.
- Your car EMI should not exceed 15% of your net monthly income on other hand Personal Loan EMIs should not cross 10% as average suggestion made by experts.
- The monthly outgo towards all loans should not be more than 50% of your net income.
- The loan-to-income ratio should be within acceptable limits.
If it is not, you will be forced to put other critical financial goals, like saving for retirement or your child’s education, on the backburner. Retirement savings become the first casualty in such circumstances.
Accuracy is critical when you compute your repayment capacity. Don’t take into account future income. Base your calculations on what you are earning now. Missing an EMI or delaying a payment can seriously dent your credit profile and prevent you from taking loans in future for other goals. Experts say that if the borrower can’t repay, he should contact the lender before the EMI cheque bounces. One way to make the EMI affordable is by extending the tenure.
Suggestion 2- KEEP TENURE SHORT AND FRAGRANT
Somehow you have heard about how keeping money invested for the long term gains the power of compounding. Well, in loans it works just the other way.
The longer the tenure, the bigger is the interest burden on the borrower. If you take a loan at 9.75% for 10 years, the interest outgo will be 57% of the principal amount. This figure jumps to 91% if the tenure is 15 years and shoots up to 128% for a 20-year loan. In 25 years, the interest outgo is 167% of the principal.
Borrowers are sometime curious to go for long-term loans because the EMI is lower and they enjoy tax breaks on the loan.
But this could be a flawed strategy because they end up paying a huge interest on the loan.
Unless the money can earn more than the effective cost of the borrowing, it should be used to prepay the outstanding sum.
In some cases, it may be necessary to take a long-term loan. Young people with low incomes may not be able to afford a short tenure. For them, the best option is to repay the loan as fast as possible by increasing the EMI. EMIs should be increased every year in line with the increase in income. This can dramatically reduce the loan tenure. A 25-year loan can be finished off in 10 years if the EMI is increased by 10% every year. Even one extra EMI every year reduces the tenure by nearly six years. Now, that’s a good way of utilizing the annual bonus or tax refund.
Suggestion 3- CHANGE LENDERS IF NEEDED
Banks often offer lower rates to new customers but charge existing customers higher rates. Be on the lookout for changes in interest rates. If another bank is offering a better rate, it makes sense to switch loans. But the difference should be at least 2 percentage points, otherwise the switching and processing charges will eat into the gains from the lower rate. Switching is more beneficial if done early in the loan tenure. It is not so beneficial if the loan is at the fag end of the tenure. The same applies to prepayment of loans. The earlier you do it, the more beneficial it will be. Read the terms and conditions carefully to avoid unpleasant surprises. Some lenders have prepayment penalties that may offset the gains from the switch.
Besides switching, one should also consider consolidating all debts under one low-cost loan. For instance, a personal loan is unsecured and attracts a higher rate of interest compared to a loan against property or life insurance policies. In fact, one large loan against property can be used to repay all other outstanding loans. But a line of credit against property can be a dangerous thing in the hands of a reckless spender. It can turn the individual into a perpetual borrower who carelessly withdraws from the account.
Suggestion 4- DON’T IGNORE OTHER GOALS
Off course a parent want to do anything to give his children the best. Though education of the child is important, it should not jeopardise your own future. Don’t dip into your retirement corpus to fund your child’s education. Education loans are easily available and bright students also get scholarships. But nobody is going to give you a loan for your retirement needs. Taking an education loan will not only keep your retirement kitty safe, but also inculcate a sense of fiscal responsibility in the child, who has to repay it.
Website of the Author- www.westertimes.com