Over the last five years, the accessibility and availability of loans have become more comfortable. There are EMI options available for almost every purchase that the customer makes. The most common is the housing loan, and almost the majority of the people depend on the loan amount to get their dream homes. People now research and study about loans and their interests before approaching the banks or lenders for loans.
The formula for EMI calculation is EMI = [P x R x (1+R)^N]/[(1+R)^N-1], where P is the principal loan amount, R is the rate of interest and N is the number of instalments.
Before applying for a loan, there are specific steps to be followed for a hassle free transaction. The bank will ask the customer for the following documents for verification purposes before granting the loan amount.
- Along with the application the customer will have to submit copy of photo id proof like passport, driving license or Aadhaar card
- One proof for residential address like the voter id, passport or Aadhaar card
- Last 3 months salary slips along with form 16
- Bank statement of last 6 months
- One job continuity proof like experience certificate, letter from the present company.
When calculated and planned correctly, loans can also be used for tax benefits. In the case of a home loan, the loan holder can claim for a maximum deduction of home loan interest up to Rs 2 lakhs and also show the principal amount that is being repaid under section 80C up to 1.5 lakhs. So people mainly treat investing in property as an investment as it has so many such benefits apart from owning the property!
Before deciding to get a loan there are certain caution steps that have to be taken.
- Before deciding the loan amount, analyze your current financial situation and also your future finances.
- Choose a loan that does not massively affect your income. A major chunk of income being paid as repayment will be only of less use.
- Make sure to hold only one or two loans at a time. Do not over borrow and land yourself in trouble. Depending on your repayment capacity choose the number of loans you will be able to handle.
- Maintain stability in your employment. Lenders will want you to have a comfortable repayment routine and will not settle if your employment records are bad!
- Your income will be the only criteria that the lenders will look out for!
There are many EMI calculators online. Here is the one by Spini, which the buyers can use to calculate the EMI for their various loans quickly.
Loans can be stressful if they are not planned properly. As a buyer or investor, you should understand the outflow of money each month. You will be paying a lot of interest in the initial days. It is always better to make some part payments when you get some additional income in the form of incentives or bonus. The part payments help you to bring down the interest component which would otherwise take away 75% of your EMI every month.
So these are the various things one has to know before approaching a lender for a loan!
Be fully equipped to manage your finances efficiently!