Why You Must Be Smart About Loans – The New Indian Express


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The Reserve Bank of India celebrated Financial Literacy Week last week. They organized online events on all social media platforms and focused on three main things. This included explaining to people that they should borrow for needs, not needs. The need to borrow from a registered intermediary such as a bank or non-bank financial company. And so that you repay your loans on time and do not miss the monthly payments.

I don’t know how many of you noticed. The general intent is to encourage everyone to borrow wisely. When it comes to credit, Indian households are conservative compared to those in the US and other wealthy countries. According to the latest data from the RBI, personal loans amount to `26 lakh crore. That’s about 10 percent of the country’s gross domestic product, or GDP. In rich countries like the USA it is over 80 percent.

In the past six months, the Nifty Bank index is up 62 percent. Over the same period, the Nifty is up 32 percent. The stock markets are banking on robust growth in the banking sector over the next few years. They are exploring the possibility for banks and NBFCs to lend more to India’s vast population. As countries get rich, retail lending increases and India is likely to experience a similar boom in the next few years as more people borrow for their personal needs. Half of the personal loans in India are home loans. That is a sensible approach to borrowing.

If you are new to the job, you need to understand the nuances of a debt trap. Borrowing too much from credit cards or taking out personal loans to spend is a surefire way to start a debt trap. When you are young, you tend to spend more and save less. In an ideal world, it should be the other way around. If you’re looking to pay, remember to buy a home in your early twenties.

When you consider the cost of a metropolitan apartment, you will find that you need to save a lot more just to get enough for the down payment required. It would be helpful if you also had a steady job or business to make sure you can pay the appropriate monthly rate or EMI. It may sound intimidating at first. However, if you continue to focus on home ownership, you will prioritize your spending. A vacation abroad or a luxury car would be ideas that you should look at later on the road.

You will be spending less each month knowing the goal is to save for the massive down payment before your home purchases are funded. Taking out a home loan is an excellent personal financing option. First of all, it will help you create a fortune for yourself and your family. It is the cheapest loan that is available to you as a private individual. If you take out a number of small personal loans with your credit card or through your bank, you will end up paying much higher interest to your bank.

The other benefit of taking out a home loan from an institution registered with the RBI is that you get tax breaks. For example, let’s say you are looking at the money you would save by deducting the repayment of your loan under Section 80C and subtracting the interest rate under Section 24 of the Income Tax Act. In this case, your effective interest rate will be even lower. If you have a good record of payments over the next four to five years, you will have a good credit record.

The advantage of having a good credit rating is that banks will be happy to lend you money at a reasonable interest rate in case of emergencies. However, the best option is to take a top-up loan on your home loan when you need cash to cover short-term expenses such as a wedding or a vacation abroad. That assumes you were a good borrower. As with the RBI Financial Literacy Week campaign, if you pay your EMIs on time, you are entitled to better charging conditions. If you want to own a home, it is good to start your professional life very early. A home loan is a very constructive way to make that dream come true.

Indian households are conservative borrowers
When it comes to credit, Indian households are conservative compared to those in the US. Personal loans account for around 10% of GDP and over 80% in the US

Advantage home loan
It is the cheapest loan for you as a private individual, as personal loans cost more interest. Home loans also offer savings in the form of tax exemptions

Rs 26L cr total personal loan value

10% of the GDP value of these personal loans

Getting a home loan early can be an excellent personal financing measure. It helps you create wealth for yourself and your family and is the cheapest type of loan available to you as an individual borrower.

(The author is editor-in-chief at www.moneyminute.in)

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