Updated: April 18, 2019
Anyone who is familiar with banking, finance or trading is familiar with the term loan. Loans are a convenient method of buying or investing in something that you need, want or intend to get immediately, with convenient payment options like EMI.
In recent years, different types of loans have emerged with different packages and benefits. One can find their perfect combination from a variety of choices, but before lending such large sum of money from an organization or individual, there are certain clauses and factors that you must consider.
Payment methods and interest rates
These are the most common and obvious things related to a loan. Every time you apply for a loan, there is a prepayment method that you may want to apply. Apart from the monthly interest that one has to pay, prepayment method helps the loan bearer to cut time period and repays the loan before time.
When it comes to interest rates, it is a simple math – the lower the interest, the better for the loan bearer. Interests are an add-on to a loan amount. The greater the rate, the greater amount of interest one has to pay altogether.
It is therefore convenient for one to apply for a loan where the interest rate is at minimum.
Things you need to know?
What is an income range?
Income range is your rate of increase in income on a regular basis. It is the increase of income on an average in tally with the increase of expenditure with years.
What are liabilities?
It is certain unavoidable expenditures that are present in everyone’s life. For example, family dependency for a family guy, an increase of expenditure, for children as they grow up, society maintenance and personal expenses like payments of various bills.
How are the above two connected?
When income is subtracted from liabilities, the amount derives your actual affordability. It is based on that amount that you should risk taking a loan. It is from that very income belt that the EMIs will be paid. If somebody misses considering these two factors before taking a loan they might be at serious risk of bankruptcy.
What is affordability?
It is the capacity of bearing the expenses that come along with the value of the product bought.
Why is it important?
When it comes to investments, there are certain expenses that need to be taken care of after the same. Thus, in any way, a loan taken must be parallel to the capacity of the loan bearer to repay the debt and afford the expenses that arrive thereafter.
If not, then the loan might become a huge liability and the interest might keep piling up till it gets impossible to repay the debt. In such cases, the organization or individual faces a contractive mortgage. Thus, it is of utmost importance to do the aftermath before deciding the amount of loan.
Taking a loan is in no way an easy feat to accomplish, one needs to conduct a thorough research and gain a precise understanding of the landscape. A CFD trader, for example, reaps the advantages of leveraged trading only via proper market analysis of leading financial instruments, like checking out the live Lloyd share prices.
Make your plan a success and go and above and beyond when taking a loan and be wary of the above questions.
This article is contributed by Robert Sonder from Washington.