Money Guru: Is your loan GOOD or BAD? Experts decode

In this edition of “Money Guru”, Zee Business delves into the conundrum around loans and their intricacies. News anchor Swati Raina talks with Col. (Retired) Sanjeev Govila, Managing Director of Hum Fauji Initiatives and Viral Bhatt, Founder of Money Mantra to understand which loans could be considered good and which are bad.

What should be kept in mind when considering taking out a loan?

What are the disadvantages of not repaying the loan on time?

What is the difference between a good and a bad loan?

Is your loan good or bad?

What is a good loan?

A loan is good if it increases your net worth.

It is able to create net worth over time

He should be able to create an additional asset

The return should exceed the interest on it

What are good loans?

– Study loan

– Commercial loan

– Real estate loan

Which loans are considered bad debts?

Loans where one has to pay more than is paid as interest
When the lender and the customer face a loss
Failure to pay on time could lead to difficulty in taking out loans in the future
Bad debt interest rates are significantly high

Bad loans:

– Automatic loan

-Personal loan

– Loan on credit card

– Consumable loan

Understand this before taking a loan

– How much loan can be taken?

– What is the importance of taking out a loan?

– Save first, then buy

– All debts must be paid one day

– How much is the good loan?

Always keep the income to debt ratio in mind when taking out a loan

Loan debt to income ratio should not exceed 40%

Priority is given to people with a low income to debt ratio

Debt to income ratio should ideally be below 30%

Benefits of a good credit rating

Possibilities of loans with lower interest rates

People with good credit scores are likely to get a higher loan amount

Banks clear loans quickly

They also enjoy the benefits of a low repayment period

What’s your score?

– Score

Very low – less than 600

Low – 600-649

Ok – 650-699

Good – 700-749

Very good – 750-900

How is credit score messed up?

Not paying EMIs on time

The score has a negative impact on the EMI defect

Take much needed credit card loans

Higher income to debt ratio

Increase credit card limit from time to time

How to improve credit score?

The credit is calculated by CIBIL

Improving credit rating is in the hands of the consumer

Focus on reducing payment fees on credit cards

Pay IMEs on time

Avoid taking too many unsecured loans

Don’t over-apply for loans

Credit card

Impact of unreasonable expenses

This could lead to high interest rates and one could end up in a debt trap

This has a negative impact on CIBILscore

One could be liable to legal action in case of misuse and defects

This could lead to stress and have a psychological, emotional and physical impact

This could lead to long-term losses

How to use a credit card appropriately?

Only use the credit card when necessary

Never use a credit card for regular consumption needs

Pay bills on time

Check the statements from time to time

Know the terms and conditions before you start using

Do not share password or PIN with others

Make a budget before using and stick to it

Don’t stick to many credit cards

What is the loan amount?

Do not borrow more than necessary

2-3 loans are acceptable

EMI should not be more than 35% of income

Which loan to pay first?

Pay off the loan with the highest interest rate first

Personal loan, credit card loans are granted at high interest rates

Pay the credit card loan first

Interest rate on credit card loans could reach 40%

On a personal loan, the interest rate can be 20%

Interest rate and penalty on secured loan

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