Availability of online loans through different banks and DSAs have brought a huge change in the lending and borrowing process of banking. The borrowing process has become so easy that it takes only a few minutes to get money credited to your bank account. All these ease, flexibility and hassle-free nature have increased the borrowing frequency of common masses. Earlier loan was considered as a big thing and people went for it only in the case when it was very important. But things have changed and people go so frequently for loan and keep multiple loans at once, such as home loan, car loan, personal loan etc. But before going for multiple loans there are certain things which should be kept in mind and considered once.
One’s potentiality to borrow totally depends on their repaying capacity. Similarly, if you already have a loan then affording another loan depends on your current income and repaying capacity. Therefore, it is a bit crucial to decide whether you can go for multiple loans or not.
Another important point to consider is- not all the debts are good debts. So, in terms to go for any you should first think that how it is going to affect you and your finances. Suppose you go for a home loan, this is generally a long tenure loan but at the end, you will have a property in your name. Same is that with a car loan, you need to pay EMIs but at the end, the car belongs to you. On the other hand, there are such loans whose interest rate is very high and at the end of the tenure nothing comes to you, you just pay the amount along with interest. So, think yourself is it worth to go for such loans. It is understood that there is some emergency situation also when there is no option except going for such a loan, this is acceptable anyhow. But taking a debt just for a luxury is not worth.
Let us understand the pros and cons of multiple loans in a better way with the help of an example-
Harish, aged 35 living in Bangalore have a monthly salary of INR 80,000. First, he took a home loan for which he is paying INR 30,000 monthly as EMI. After a few years he took a car loan too for which he is paying monthly INR. 10,000 as EMI. After a year or two, he again went for a personal loan by the time he got increment and now his salary is INR.95,000. So, for the personal loan, he is paying 10,000 as EMI.
Now calculate- 30,000+ 10,000+ 10,000=50,000 total Payable amount as EMI.
Total salary=95, 0000
Monthly total EMI= 50,000
Remaining amount= 95,000-50,000= 45,000
So, remaining 45,000 is less than half of this salary and in this, he has to take care of his family’s monthly expenses and need to save some as he is doing SIP and LIC from last 5 years.
Harish monthly expense is 40,000, so now as a result of having multiple loans he is left with only 5,000 in hand and he has to give premiums for both LIC and SIP. Doing these two along with some savings for an emergency is not possible. Hence, he needs to stop investing in these two.
Pros of Taking Multiple Loans at Once
- Provides you Flexibility! When you have an easy access to funds you can use it the way you want and where ever you want. You need not be worried all the time.
- Taking multiple loans and being timely with its EMIs can improve your credit history and hence the Credit Score.
- Safety & Security, having more number of funding sources at the same time can provide you security. As, when funds are easily available, your business operates with a bit of a safety net, since you know additional money is available when it’s needed.
- You can fulfill multiple desires at the same time. As with the help of multiple loans you can have home, car, vacation and many more at the same time.
Cons of Taking Multiple Loans at Once
- You need to pay the EMIs regarding all the loans at the same time. This thing can affect your financial goals. As when you pay more on the EMIs you are not left with money for investment and in some cases even for savings.
- Multiple loans at once always lead to create mental tension and stress for the borrower as the borrower is always worried about the repayment.
- While having multiple loans you are paying more on the interest, much more than you borrowed.
- In case of having multiple loans at once, there is a possibility that you may delay any of the EMI either due to some urgent requirement of money or due to some other reason. This can have a negative impact on your credit score. This will directly affect your future credibility.
So, whenever you want to go for a loan, first analyse whether it is worth or not. Go only for those loans which can give you a better return in future or which can help you generate more money in the future. Remember it seems like a fun and makes you happy when you easily get a loan approved, but the picture starts when you start repaying it. The repayment time is long and can affect your finances adversely! So, think twice before you Borrow!