Do you need a loan?

If you are a salaried employee you must have received calls asking whether you need a personal  loan or not. They will tell you that you can get a loan in less than a week. That was before the recession. Now the same people ask you if you need a credit card. No matter what way the loan is handed to you, here are some tips and thoughts to ponder about when deciding to take a loan.

1) Do you really need the loan?

Do you really need the money. In case you plan to buy yourself something like a bike or car or electronics, ask yourself "is it really important for me to have it"

2)Is it an investment or waste?

An investment is not always a mutual fund or insurance. When I say investment, it means that you use the money to become wealthy and successful. If you work for more than 12 hours a day, a holiday is an investment since it will help you recharge. If you buy clothes or make-up that help your self-esteem and builds a reputation with others, it's an investment. Similarly, if a bike can cut your traveling time, it becomes an investment provided, of course, the time you save is utilised well. 

3) Can I afford it?

Suize Orman has a segment in her show called Can I Afford It? where callers ask if they can afford something based on their income and expenditure. Some of the things in her check-list that she goes through before she gives a verdict "approved or denied" are

• Do you have any credit card debt or other loaned
  
• Do you have enough in your retirement(IRA, Provident Fund, LIC insurance etc)? That money cannot and should not be touched under any circumstances.
  
• Do you have enough saving? She also adds

"YOU SHOULD HAVE ENOUGH CASH IN YOUR SAVING TO LAST YOU 6 MONTHS IF YOU LOOSE ALL YOUR SOURCES OF INCOME"

Before taking the loan, you should keep aside atleast 6 months worth instalments, in case of emergency.

4) Read the terms and conditions

This will require some research. If you dont have the time to do it yourself, consult a lawyer or accountant. In general, you should check out the repayment options (including the duration, interest, EMI, the date of payment every month-do you get your monthly salary by then?), refinancing options, early payment and closure details etc.

Dont be fooled, the lenders are very polite and friendly when they offer you the loan but during repayment they turn into vampires or sharks waiting to suck every last rupee form your bank account at the very first mistake you make (for example, late payment). It's their job to make money off you so be cautious.

5) Learn all you can about money

If you dont know to calculate your EMI or dont know how to write a cheque or if you hate going to the bank or reading long contracts and terms and conditions or other related concepts, please do not take a loan or a credit card. You will suffer the consequences. Lots of people are in deep financial debts simply because they didn't read the fine print or have put wrong dates on their instalment cheques.

I hope this helps you when you decided to take a loan.