Highlights
- Personal loan plays an important role in deciding your EMI amount and interest cost
- Before taking a personal loan, consider other alternative loan options, such as loan against property
- Debt trap is such a situation when it becomes very difficult to repay the loan.
Festive loan offer: Festive season is going on. The festivals of Dhanteras, Diwali and Bhai Dooj are coming ahead. During this we all shop for Jewellery, TV, Freeze, Mobile, Home, Car and Clothes. At this time, banks also come with offers to offer loans at low interest including zero processing fees to attract customers. On the other hand, the increasing trend of smartphones, apps and digital transactions has changed the way of banking in the country. Along with banks, fintech (financial technology) companies also have a big hand in this change. These companies are providing short-term loans instantly from the app or online without any paperwork. This has made getting loans easier on the one hand, while on the other side it has also happened that especially the youth and millennials are getting caught in the grip of debt. If you are also thinking of taking a loan for shopping during the festival, then definitely keep some things in mind. Otherwise, you may fall into the debt trap.
Rapidly increasing the trend of taking loans
According to a report, the growing trend of online has completely changed the banking sector as well. Many private sector financial technology (fintech) companies have entered the market, which are providing loans within 24 to 36 hours through app and online application. According to financial experts, Indian millennials are not afraid to take loans. That’s why they also do downpayment in any purchase with a credit card. Later, they keep falling into the debt trap.
Paying off loan by taking loan is not a good habit
Another trend has been seen among the youth. The habit of repaying the loan by taking a loan. It would be a wise decision if you take another loan at a lower interest rate to repay the loan at a higher interest rate. But, if you are taking another loan because you do not have the money to repay the loan taken earlier, then you will go on getting caught in the debt trap.
Do not refinance the loan
Fintech companies provide loans to refinance ie restructuring facility to grow their business. Under this, companies give the facility of restructuring the first by taking a second loan despite having one loan. The objective behind this is to increase the business of Fintech companies. Financial planner Vishal Dhawan says it is a trap of sorts. Young people are getting caught up in this fast. They are taking one loan after another and are unable to get out of the debt trap. This is a bad habit. Make a habit of saving before spending.
take care of these things
- Know your loan repayment capacity first: Personal loan plays an important role in deciding your EMI amount and interest cost. Therefore, before taking any loan, first assess your repayment capacity. This will make it easier for you to repay the loan and avoid defaulting on the loan.
- Compare with other loan options: Before taking a personal loan, consider other alternative loan options like loan against property, top up home loan, gold loan etc. The interest rates on these can be lower than that of a personal loan.
- Payout from existing investment: Investments like FDs, Debt, Mutual Funds give you lower returns as compared to personal loan interest. You can also use your mutual funds or FD investments to clear credit card dues. Provided that you do not have any short term goals for these investments.
What is a debt trap?
Debt trap is such a situation when it becomes very difficult for a person to repay his debt. That is, such a financial situation, when it becomes almost impossible for him to repay the principal amount of his loan, and that person can pay only the interest of the loan.
don’t make these mistakes
1. EMI above 50% of the income
Never let your loan EMI burden exceed 50% of the monthly income. This is an alarm bell. Generally, the EMI burden is considered to be up to 40 percent of the income. But with the changing times, due to interest-free EMIs, discounts and ‘sales’, young residents are falling into the debt trap by taking loans of more than 50 per cent of their income.
2. No savings at all
Everyone wants to save at least 10-20 per cent of their monthly income. If all your earnings are spent and you have no savings, it means that your expenses are out of control. In such a situation, soon your expenses will exceed your income, that is, you will go into debt. To avoid this, control your spending.
3. Loan needed even for small expenses
Loan for Routine Expenses Often many people take a loan for regular expenses. Such expenses include rent, children’s fees, etc. Know that the debt trap is tightening when you start borrowing for such routine expenses.
4. Credit Card Withdrawals
Where it is wrong to borrow for regular expenses. At the same time, using a credit card to fulfill them can also put you in trouble. Use of credit card for needs is not right. Loans With rising EMIs many people become over-optimistic about their future increments. Never take a loan thinking like this.
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