If you are confronted with a financial crisis or an urgent need for money, it is of course to borrow. However, it is important to realize that the loan amount must remain within a comfortable range. This means that one should not borrow so much money that it becomes too high to pay back.
How much is too much?
It is of vital importance to note that there are dime A -dose Banks, NBFCs and Fintech platforms that are willing to give you personal loans with high interest rates. But you must be careful that you cannot borrow more than you can afford to pay back.
It is usually expected that the borrower will keep the EMI amount lower than 50 percent of the monthly income, while it is better to keep it below 40 percent.
“We often tell our customers to keep their monthly EMIs less than 40 percent of their income. Regardless of the temptation, one should not borrow outside their resources of reimbursement,” says Deepak Aggarwal, a chartered accountant and asset advisor established in Delhi.
What are the factors to consider?
There are a number of factors to consider before continuing with a loan. These include the following:
A. Urgency of loan: Whether loan is absolutely essential, ie, whether it is for a wedding or for vacation. If you borrow money for something as urgent as a wedding, you must continue. Otherwise you can put your plan to borrow or at least postpone it if it is intended for a luxury.
B. Interest rate: The Kwantum of EMI is a function of interest rate and an amount of the loan. If your loan is too small, but the interest is too high, the EMI can also be exorbitant. So one has to be wary to borrow money at a high interest rate.
C. Current income: You must borrow money based on your current income instead of your projected future income. If your current income can enable you to easily repay the loan, you must continue. Conversely, the practice is to set up a loan on the basis of an ‘assumption’ that your income will spijken in the near future will not be recommended.
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