Borrowing money or taking out a loan can prove expensive and cause collateral damage if you are not aware of the financial risks involved. While there may be a risk, they can be extremely helpful when purchasing expensive items like a home or a car or when you encounter unexpected expenses. Borrowing or taking out a loan means that you offer your commitment to pay back the lender or the bank promptly with a certain amount of interest added to the principal. It is always good to ask several questions before borrowing money.
The credit limit should be well within your limit to make sure you do not fall into the trap of financial burden. Proper financial planning is a mandatory thing if you think to obtain loans.
A loan can be an easy way to secure cash when you require the most. However, there are several loopholes in the financial systems which are aimed at predating the defaulted customers.
Problems in Pre-closure
The loan processing time is dependent upon the financial institution. A normal bank will take up to two weeks of time to process your application completely.
If anyone promises to offer you a loan in 24 hours, make sure you are approaching the right hands. Such lenders will try to by-pass most of the background checks and will penalize you heavily in the future if you do not meet up their expectations.
Most of the lenders are aimed at providing unsecured loans to individuals. The interest rate will be very high in such cases. Most of the borrowers fall under this category in the current scenario.
People are not sure about the employment opportunities and most of them are yet to recover from the past distressed state. Hence, they are forced to accept the unsecured loans that are thrown away at sky-rocketed interest rates.
Personal loans will be given away at higher interest rates and the tenure shall be a minimum of 30 months. By the time when the individuals complete the loan tenure, they would have paid more than 150% of the principal obtained.
They will not be able to pre-close the loan for which they have to pay a hefty amount as the fine.
Home loans have always been a problem for home buyers. Usually, the home loans will be for a term of 15 to 20 years. It is highly frustrating to engage in loan terms for so many years.
An individual will be trapped in debt for almost 20 years spending most of his salary amount on loan.
Credit Card Loans
Credit card loans are the most dangerous loans of all. Without knowing the credit ceiling limit, the individuals are allowed and encouraged to spend money.
The outstanding limit is usually high for these loans. The individual might have a bad habit of taking another loan to clear off the existing loan amount. This is not recommended in the financial domain and it will lead to catastrophic damages.