Should I take a Loan ?
how one should take a decision about taking a loan or not ?
Which are the tings he/ she should consider before going for loan ?
How to select the duration of the loan ?
There are many questions in the mind of common man about what to do & what to not.
Taking Decision :
The decision to take a loan is depend on :
1. The need. :
The need is the most important thing which drives this whole world. As I was telling you loans are helpful to optimize your CashFlows if used in right way.
Long term loans help you to acquire things today & to pay later no doubt you have to pay interest & the acquired property remains as a property to lender.
Eg. Housing Loan , You can buy a house on loan which may not be possible you to Buy. as well as you can stay in the house which is actually pledged to Bank & bank is a owner up to clearing of the loan. we had seen a generation trend where people was able to take a home at the time of retirement up to past 20 years, today any individuals who is working for 5 years has a home. this is made possible by optimization of Cashflow by loans.
( this also resulted in to Real estate price boom ).
The need and possible options should be analysed.
Need for 1BHK or 2 BHK or 3 BHK ?
Need for Car or Can we manage by Auto ?
Need to have a bigger home ?
Need to have one more property ?
We really have to differentiate between Real Needs & sentimental needs.
2. CashFlow position.:
See weather your cashflow are in position to take a burden of loan,
3. Your working span :
You should retire debt free.so while taking loan you have to see that the loan gets over till retirement. so that there is no spill over. if the floating rate of interest is increasing your term over your retirement you should think of prepaying or increasing your EMI.
4. weather to use your own resources or to take a loan ?
This you should decide on the basis of opportunity available , Your age , time to retire the duration of loan . for the short duration loans it may not have a big effect but for longer duration loan it is.
Eg. you want to Buy a House costing 3500000/- Bank is ready to Fund you 80% @ 11% for 20 years.
You have 3500000/- ready with you no the question is to take a loan or to use your own capital.
In my view if it is a question of long duration you should go for loan. Why ?????
Just work out.
If you take a loan
Loan Amount : 2800000/- @ 11% ( sake of calculation assume it is Fixed )
EMI would be : 28901/- Term : 20 years
Total have to repay : 6936306/- oh a huuuuuuuge interest of Rs. 4136306/- you should save this Right ??? But wait see what you may loose .
IF same amount of Rs. 2800000/- invested for 20 years @ 14% will yield you 3,84,81,772/- if you plan proper asset allocation 14% per year is possible.As well as you money is free for opportunity.
So now what to do ? if your CashFlow permits go for a loan! As well as take a benefit of Govt. Facility on repayment.
Like in today's market the Auto loans from Few companies are available at unbelievable rate of 6 -7 % where it is offered in market @ 12 to 13% . IF there is a need go for it .
how one should take a decision about taking a loan or not ?
Which are the tings he/ she should consider before going for loan ?
How to select the duration of the loan ?
There are many questions in the mind of common man about what to do & what to not.
Taking Decision :
1. The need. :
The need is the most important thing which drives this whole world. As I was telling you loans are helpful to optimize your CashFlows if used in right way.
Long term loans help you to acquire things today & to pay later no doubt you have to pay interest & the acquired property remains as a property to lender.
Eg. Housing Loan , You can buy a house on loan which may not be possible you to Buy. as well as you can stay in the house which is actually pledged to Bank & bank is a owner up to clearing of the loan. we had seen a generation trend where people was able to take a home at the time of retirement up to past 20 years, today any individuals who is working for 5 years has a home. this is made possible by optimization of Cashflow by loans.
( this also resulted in to Real estate price boom ).
The need and possible options should be analysed.
Need for 1BHK or 2 BHK or 3 BHK ?
Need for Car or Can we manage by Auto ?
Need to have a bigger home ?
Need to have one more property ?
We really have to differentiate between Real Needs & sentimental needs.
2. CashFlow position.:
See weather your cashflow are in position to take a burden of loan,
3. Your working span :
You should retire debt free.so while taking loan you have to see that the loan gets over till retirement. so that there is no spill over. if the floating rate of interest is increasing your term over your retirement you should think of prepaying or increasing your EMI.
4. weather to use your own resources or to take a loan ?
This you should decide on the basis of opportunity available , Your age , time to retire the duration of loan . for the short duration loans it may not have a big effect but for longer duration loan it is.
Eg. you want to Buy a House costing 3500000/- Bank is ready to Fund you 80% @ 11% for 20 years.
You have 3500000/- ready with you no the question is to take a loan or to use your own capital.
In my view if it is a question of long duration you should go for loan. Why ?????
Just work out.
If you take a loan
Loan Amount : 2800000/- @ 11% ( sake of calculation assume it is Fixed )
EMI would be : 28901/- Term : 20 years
Total have to repay : 6936306/- oh a huuuuuuuge interest of Rs. 4136306/- you should save this Right ??? But wait see what you may loose .
IF same amount of Rs. 2800000/- invested for 20 years @ 14% will yield you 3,84,81,772/- if you plan proper asset allocation 14% per year is possible.As well as you money is free for opportunity.
So now what to do ? if your CashFlow permits go for a loan! As well as take a benefit of Govt. Facility on repayment.
Like in today's market the Auto loans from Few companies are available at unbelievable rate of 6 -7 % where it is offered in market @ 12 to 13% . IF there is a need go for it .
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