Enable Effective Money Management Through Home Loan
A loan for any individual should always mean less cost spent on maximum returns. In order to minimize your costs, Home Loans are an apt option. There are multiple loans which are provided by several banks and can be divided across 2 major categories;
- Unsecured loans
- Secured loans
Unsecured loans, as the name suggests, does not give you any security or collateral. The interest rates on these are always high, and these products are when banks provide you with a loan without any security and take up risks as they can incur a lump- sum amount as bad debt, if not repaid.
Some of these loans are,
- Credit cards
- Personal loans
- Business loans
- Line of credit
On the contrary, the loans which require keeping any amount of security or collateral with the bank are termed under Secured Loans. The banks under these do not take any kind of risk as on repayment. The bank sells the pledged collateral or security to repay the loan amount. These loans have less risk involved; thus; the rates of interests are less. Some of the examples are,
- Property loans
- Gold loan
- Share loan
How to optimize the existing loans
Opt for a Home Loan – Home Loans are way cheaper than any other product available in the market. The Home Loans are given on the basis of Eligibility, salary and age and can be a very useful tool to cope with the other loans and expenditures incurred.
Upgrade against your Home Loan – Banks or other financial institutions give their customers an option to avail an update on the existing loan. The update availed on it is based on criteria like eligibility criteria, payment records of the individual and value of the property pledged. The eligibility criteria to avail an additional loan is,
- Your income determines your loan upgrade
- If the value taken previously is not equal to the total value, a loan can be upgraded
- If your repayment of the loan has been regular and consistent, that you can be upgraded
Repay other loans with home loans – the upgraded amount can be used to repay other loans other than Home Loan. Loans like Personal or loans on a credit card where the rate of interest can be 40% and 14%, which can be repaid with the upgraded amount. Once all the loan amounts are fulfilled there would be only one sum of money which can be repaid in lower rates of interest. By paying the credit card payment or any other kind of loan, your EMI will substantially reduce, and you can manage your loans comfortably.
Earliest possible repayment – Any loan is a huge drawback in the financing of any entity. Despite the clearing of multiple loans, there are a few of us who are left with a huge lump sum to repay. Even if a house loan is the cheapest of all, ending it within the period of 7 – 8 years is a good idea as the amount if being repaid, post the term, the individual will end up paying more than that of the actual amount. For example, if the term is for 20 years with the rate of interest being 8.50% and the amount of the home loan being 50 lakhs, the amount after the 7 or the 5th year will become 1.04 crores which is the half amount of the loan procured.
Repay the loan amount with EMI – An EMI, for an example of 35, 000 will initially look bigger than the actual 23, 0000 you have to repay, but sometimes the bigger, the better. If you pay an EMI on loan for an elongated period of time, the EMI amount will sum up to more than that of the loan amount. In the duration of the extended EMI, you also end up paying more rate of interest than had planned to.
An Extra EMI every year – Paying an extra EMI every year can be proven to be beneficiary as it will drastically cut down on the principal amount of repayment and the bank or any financial institute from whom you have availed your home loan, will not have any problem receiving a little extra from you. The loan can be easily completed by doing so.
Make a switch – if you find out that your home loans can be availed at a cheaper rate, make a switch to an institution which is willing to make a better offer as the opportunity becomes a mode of savings by shifting to lower rates of interest. The shift will remove the hurdles of a loan’s appraisal process and thus reduce the paperwork and fee payment.
These are a few things which can help in the optimal usage of home loans and EMI also keeping a check on other products availed by you.