Loans your way
The interest rates are high today. So borrowers opt for a longer tenure that makes EMI repayments more manageable. What does a long-term loan actually translate into for a borrower ? It means a financial commitment to the lender for years that cannot be skipped. Whatever be your other financial obligations, you cannot afford to default on home loan repayments. Repaying the loan quickly, and making your roof your very own, will lend you peace of mind. But borrowers who do not have enough fianances have no option but to take a long tenure loan.
However, such long time-frame loans carry with them an element of uncertainity. Adding to this is that the borrower ends up repaying more in the form of interest, when compared to short tenure loans. There is something to cheer about too. Borrowers can hope that inflation can make their repayments look small in the years to come. Also, the property would have multiplied manifolds in value as years roll by.
It is critical for borrowers who have taken a long tenure loan to manage their finances well. Proper planning in advance, forecasting expenses, prioritising expenses, maintaining an emergency expenditure kitty and chalking out a long-term financial goal - is where you have to get started from.
Here are some tips to help you manage a long-term loan :.
Pay off other loans.
Personal loans, vehicle loan, consumer durable loan, credit card debt - many luxuries of today are built on borrowed money. Repaying other outstanding debt either partially or completely will help you gain better control over your finances. Pay at least the minimum amount due to every lender on time. Paying off a loan faster will help you save several thousand of rupees in interest repayments.
Clear high-interest debt first.
Borrowers who can afford to make extra payments must start repayment with the loan charging the highest interest. Keep loan that give huge tax breaks like home loans for the last.
Prepayments option for the risk-averse.
Some borrowers who have taken floating rates or fixed at high interest levels tends to panic. Such risk-averse borrowers, who cannot stand the steady increase in interest rates, must prepay as much as possible. This could even mean using up all their liquid assests and other debt investments.
Work towards your goals.
Do you want to save more for your retirement needs? Do you have your child's marraige expenses to bear? Will your children's education be quite burdensome? Invest early and regularly, keeping these commitments in mind.
Never overlook inflation.
Be it a debt instrument or an insurance package- never overlook the inflation factor when measuring returns. Inflation eats into your returns making the entire investment exercies worthless. Try saving or investing even if it is a small amount, whatever be your commitment to servicing debts.
Cut Expenses.
For those in heavy debts, try cutting down on unnecessary luxuries. Get down to spending more prudently until you have repaid all the lenders. Also, consider refinancing. If your loan package comes with too many frills and features that you do not need or use, consider refinancing at a cheaper rate.
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