Getting rejected for loans? Here is how you can be a smart borrower

If you have ongoing debt, do not compromise on your debt payments to save or invest.

Technology and digital interventions have made it easier for lenders to fill the gap for borrowers between what can be afforded and what borrowers aspire.

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With lending apps and online platforms, the loan market has taken a new approach to providing loans, wherein people no longer have to wait by saving bit by bit before making a big purchase or expense, or even wait for getting the approval for a loan. It’s just instantly available within a few hours or a day.

Experts say with such easy access to credit, borrowers who have taken the process for granted, get rejected for further loans from NBFCs and instant loan providers, as a result of poor credit score and credit history.

If you are also among those who use these instant money providers or are planning to use them, there are ways you can borrow money so that you can avoid getting rejected for loans in the future.

Avoid borrowing for impulsive buying
Don’t borrow with heavy interest rates, just for a shopping spree. Emotions play a big role while making shopping decisions, which is something marketers all over the world leverage through advertisements and promotions. Hence, it is advised not to borrow for discretionary expenses. Keep in mind, doing retail therapy with borrowed money is not the way to go.

Amount to borrow
To start with, do not borrow more than what you need and what you can repay. While borrowing, note that your overall EMI outgo does not exceed 50 per cent of your monthly income. Depending on your monthly income, if you want to find out what your EMI outgo should be, you could use an EMI calculator to find out the monthly EMI you could pay, before taking a loan.

Short loan tenure
It will look like a sweet deal at first, that you will have to smaller EMIs every month, but lenders/banks do it to offer longer loan tenures. With a longer tenure, the interest also ends up being higher due to the time period. Long tenure means higher interest pay-out.

Delay in payments
The penalty or extra interests in total turns out to a huge amount, that could otherwise have saved if you would have paid your dues on time. Missing payments might not seem a big deal but it has a direct impact on your credit score and spoils your chances of getting a loan in future. If you have ongoing debt, experts say, one should not compromise on their debt payments and save or invest.

Availing tax benefits
Government offers tax benefits on loans, such as tax deduction on home loan under Sections 24 and 80EE of the Income Tax Act, interest paid on education loan is also fully deductible. If you are among those trying to tax benefit by availing loans, experts say, it does not make sense to keep the loan running just for tax benefits. On the other hand, try comparing the effective cost of the loan with the returns that you could earn if the amount was invested.

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