6 Golden Rules of Borrowing

6 Golden Rules of Borrowing

We are not living in an ideal world where everybody has enough money for their needs and wants. People borrow a little to fulfill their dreams and wishes. Banks, NBFc’s and other financial institutions lure potential clients with offers, instant sanction and quick disbursals.

Rule 1 – Don’t borrow more than you can repay

While you should never borrow for your life style wants, but a thumb rule says, you can go upto 10% of your monthly income as your Personal Loan.  I know several youngsters pay upto 40% of their monthly income and that is wealth destruction.

Never exceed 10% of your monthly Income to Personal Loan

Rule 2  – Keep the tenure as shortest

People prefer – Longer the tenure, lower the EMI. Its very tempting to take long duration. Keep the tenure as shortest as you can.  I possible increase the EMI and complete the borrowing before the due date, this will allow you to increase your CIBIL Score and save your interest component.

Rule 3 – Don’t Borrow to splurge or to Invest

Often people become greedy and get lured by fraud and unsolicited SMS’s with high returns. They borrow and invest with these schemes and lose everything.

Also I see a trend and ads where EMI is available for vacations. While it is important to unwind and destress yourself, but not with the borrowed money.

Rule 4 – Take Insurance with high ticket loan

If you are taking a large home loan or business loan, buy a term plan for the same amount. You family will be ringfenced with all uncertainties.

Rule 5 – Keep shopping for better rates

It’s important to access a loan with cheaper interest rates. Keep shopping for best interest. Remember even a 2% of reduction at the interest rates can bring a huge savings.

Rule 6 – Do read the fine prints

Read the terms and conditions carefully to avoid unpleasant surprises. If it’s a high ticket loan, get a financial consultant or legal advisor to go through the fine prints.

Don’t fall in a debt trap, borrowing is a responsibility. Your credit history is an important document for all your future borrowings.

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Sathish Kumar         

Equity Fund Manager | Financial Consultant | Author

Founder – Creating Wealth Company

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