Money Guru: Is your loan GOOD or BAD? Experts Decode

In this edition of ‘Money Guru’, Zee Business delves into the conundrum around the loans and their intricacies. News Anchor Swati Raina speaks to Col (Retired) Sanjeev Govila, Chief Executive Officer Hum Fauji Initiatives and Viral Bhatt, Founder of Money Mantra to understand what loans could be considered as good and which are the bad ones.

What to keep in mind when planning to take a loan?

What are the disadvantages of not paying loan in time?

What is the difference between a good and a bad loan?

Is your loan good or bad?

What is good loan?

A loan is good if it increases your net worth.

It is able to create net asset with time

It should be able to create further asset

The return should exceed the interest on it

Which are good loans?

- Education Loan

- Business Loan

- Home Loan

Which loans are considered as bad loans?

Loans where one has to pay over what is paid as interest
Where lender and customer have to face a loss
Failure to pay on time could lead to difficulty in taking loans in future
The interest rates of bad loans are significantly high

Bad Loans:

- Auto loan

-Personal Loan

-Credit card loan

-Consumable loan

Understand this before taking loan

- How much loan can be taken?

- How important is taking Loan?

- First save and then buy

- All debts are to be paid one day

- How much loan is the right loan?

Always keep income to debt ratio in mind while taking loan

Debt to income loan ratio should not be over 40%

Priority is given to people with lower income to debt ratio

Debt to income ratio should ideally be lower than 30 per cent

Benefits of Good Credit Score

Chances of loans at lower interest rate

People with good credit score are likely to get higher loan amount

Banks clear loans in expeditious manner

They also get benefits of low repayment period

What is your score?

  - Score

Very Low – lower than 600

Low - 600-649

Okay - 650-699           

Good - 700-749

Very Good - 750-900

How credit score is spoiled?

Not paying EMIs in time

Score gets negatively impacted on EMI default

Taking loans more than needed on Credit card

Higher income to debt ratio

Increasing credit card limit every now and then

How to improve credit score?

Credit is calculated by CIBIL

Improving Credit score is in the hands of consumer

Focus on reducing payment dues on credit cards

Pay EMIs on time

Avoid taking too many unsecured loans

Do not make too many applications for seeking loans

Credit Cards

Impact of unreasonable expenses

It could lead to high interest rates and one could get caught in debt trap

It has a detrimental impact on CIBILscore

One could be liable to legal action on wrong usage and defaults

It could lead to stress, and may have a psychological, emotional and physical impact

It could lead to long term losses

How to use credit card in a right manner?

Use credit card only when it is necessary

Never use credit card for regular consumption needs

Pay bills on time

Check statements from time to time

Know terms and conditions before starting to use

Do not share password or pin with others

Make budget before using and stick to it

Do not keep to many credit cards

How much loan is right?

Do not take loan more than required

2-3 loans are okay

EMI should not be more than 35 per cent of income

Which loan to pay first?

Pay loan with highest interest first

Personal loan, credit card loans are given at high interest rates

Pay for the credit card loan first

Credit card loan interest rate could be as high as 40 per cent

On personal loan, interest rate could be 20 per cent

Interest rate and penalty on secured loan