MONEY MATTERS

If you suddenly run into good fortune and have spare cash, consider prepaying at least a part of your loan, at one go or annually. This way, your principal will come down and your years of indebtedness will get reduced. Best of all, it will considerably cut down the total interest amount you will pay. Many lenders, especially the bigger ones, do not charge any penalty for up to a certain portion prepaid every year.

You will find that different banks offer slightly different rates of interest. So you could take a fresh loan from the one offering a lower interest rate and repay your old loan. But refinancing is costlier than switching, since it will mean paying closing penalties on the first loan. But it may still be wise, if the new interest rate is substantially lower. You will have to calculate carefully and see if your loan’s tenure could also be shortened.

Watch out

Builders, too, run their business after taking loans. With the sudden economic downturn, even the bigger builders have massive debts they find hard to repay. So avoid buying unfinished house or flat, even if it is offered cheap. You could lose your money, if it gets delayed or never gets finished.

Never borrow more than you can comfortably pay back. If you take the loan while you are still young and your earnings increase substantially as the years go by, you won’t feel the pinch of the EMIs after a while.

Filed under: Uncategorized by SAJ