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Five minutes to check whether you should become a Borrower

There are so many attractive things in the market that we aspire to own and enjoy.

There are so many lenders who are willing to make those aspirations come true.

But, don't forget...all this comes at a cost. (As is often said 'There's no free lunch')

If you don't want to risk your family's (and your own) future, you would think twice before signing on the dotted line.

Here's a checklist to ensure that you don't go overboard with your borrowing. It will take you around 5 minutes to run through the list. Believe me, these will be one of the most important 5 minutes of your life. 

Step 1: 
(a) Are you borrowing for creating an asset such as Home Loan, Education Loan or Vehicle Loan? If yes, go to Step 2.

OR

(b) Are you planning to take a Personal Loan or using your Credit Card to buy luxuries (LED TV, Smartphone, etc.) or splurging (vacations, designer dress, etc.)? If yes, STOP here. Preferably use your "already-earned" money in such cases. Don't play with your "unearned-income".

Step 2: 
Sum up all the EMIs you are paying as on date. Add to this the new EMI that you are planning. The total should be 
(i) Less than 45-50% of your monthly take-home pay if your loans include a Home Loan or Education Loan

(ii) Less than 20-25% of your monthly take-home pay if you have a vehicle loan / personal loan / credit card outstanding

(iii) Less than 10-12% of your monthly take-home pay if you have only personal loan / credit card outstanding.

Step 3: 
Take advantage of the competition and shop around for the best deal. Since interest cost is the major expense, try for the minimum rate. However, as interest rates quoted are subject to 'window-dressing', ignore the interest rate. Instead, compare the EMI/lakh for a given loan tenure + processing & other charges. The minimum figure would be the best as it would mean minimum cash outgo.

That's it! 

Get these steps right and you will, in all probability, avoid any debt crisis.

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