Borrowing money has been a taboo topic for many individuals because of many cases in which the borrower incurs more debt due to their failure to make repayments. Such stories gave borrowers and lenders alike a bad name. As a result, people in need of financial assistant hesitate to borrow money even from lending companies.
However, such financial services are known to offer to help many people finance their needs, and in some cases, their wants. This is why it is important to make the right decisions when borrowing. With this, you can help dispel the reputation that has been attached to lending.
If you are interested in borrowing money, it pays to know the basic rules any borrower should follow. Want to know what these rules are? Continue reading to find out more.
Only Borrow From Reputable Institutions
The very first rule you should observe when borrowing is that you should only transact with banks or licensed lending firms that are registered with the Reserve Bank of India (RBI). Moreover, you should see to it that you approach an institution that is not only licensed but is known to have great feedback from borrowers like you. This way, you know that you are in good hands.
Now, you might be cautious when borrowing from such companies, especially as they have requirements that you may or may not be able to supply. Because of this, you might think of turning to loan sharks instead. Remember that this is not a good idea as these people are known to practice predatory lending and would not hesitate to employ illegal means to get repayments should you fail to do so.
Find Terms You Are Comfortable With
After finding reputable institutions, the next thing you need to do is sort through the list of lenders you are considering and find terms that you are comfortable with. These terms and conditions include the loan amount, term, and interest rate. You can also expect the fine print to include other important details such as penalties in case of failure to repay and other similar information.
Speaking of fine print, make sure to carefully read every single clause of the contract. Keep in mind that while these institutions operate legally, they can include provisions that can be detrimental to your financial future. So, make sure to clarify every single detail that is unclear to you.
Borrow Only What You Can Manage
Next, make sure that you get a loan amount that you absolutely can repay. Remember, just because you need the money now for important reasons does not mean that you should max out your financial capability in the future. You may be tempted to borrow a large amount of money to cover all of your needs. However, when you will be dedicating a huge chunk of your future money to repay by neglecting your necessities, then you must reconsider.
Instead, why not borrow a manageable amount to ensure that you can make your repayments while also having enough money for your basic necessities such as rent, food, utilities, and water. You can also opt for a longer loan term. However, remember that this means that you will be paying more in total because of interest.
Think Before You Borrow For Investments
You might think that it is a good idea to take out a loan and use the money for an investment opportunity. While, yes, many lenders offer business loans, keep in mind that such offers have terms and conditions fit for the kind of risk taken by both the borrower and lender. However, if you are taking a personal loan, for example, and you want to invest it in financial vehicles such as the stock market, then think again.
If the investment is a high-risk one, then borrowing should never be an option. Meanwhile, if the opportunity is high-yield but low-risk and matures before the end of the loan term, then this can be a good opportunity. Just watch out for scams and you are good to go.
The Bottom Line
Of course, it goes without saying that you should exercise discipline when it comes to making repayments. By following these rules, you can ensure a safe experience with loans.