Applying for a loan? 5 things you must know

These pointers will help ease your home loan hunt

We live in a knowledge economy. The more you know, the more are you equipped to battle this world. The importance of knowing increases manifold when you are considering taking a loan, because it is imperative that you understand the nuances of terms and conditions.

Following are some issues to be considered before you apply for a loan:

1. Do you really need a loan

It may be a very pressing need. See if you can pull out any of your savings instead of taking a loan. I agree a penny saved is a penny earned. But in today's world, the returns on your savings are always lesser when compared to the interest outgo on a loan. So do not be penny wise and pound foolish.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

2. Your CIBIL Score

This is something that we at Creditvidya always advice people. Know your credit score before you apply for a loan. If you know your credit score is low, you can work towards improving it and then apply for a loan instead of being rejected by a bank straight away which could further pull down your score.

3. Interest rates and other charges

Do a comparative study of all the banks' interest rates and other prepayment charges. If someone promises to give at a cheaper rate, always check how much you would have paid at the end of the loan tenure. Sometimes what seems like a competitive interest rate isn't always so.

4. Equitable monthly installments

Know your (EMI) before you borrow. See if you can afford that EMI during the loan tenure. It is advisable not to overleverage in terms of debt beyond a limit.

5. Tenor of loan

The cost of your monthly repayments will obviously depend on the amount you are looking to borrow, but it is also dependent on the period over which you will repay the debt. You can reduce your monthly repayment by opting for a longer term. However, this will be more expensive because you'll pay more interest.