There are many reasons as to why people take out loans, such as to start small businesses, to purchase a home or to improve an existing one, to consolidate a debt, and to purchase a vehicle. But unbeknownst to most people, there are actually lots of things to be considered when taking out a loan, and it is not just the interest rate which should be heeded by people whenever they make loans. The interest rate, of course, is a necessary aspect of any debt because it is the amount that a debtor has to pay including the amount of the debt, but there are other factors, such as the Equated Monthly Installment (EMI), tax benefits, and pre-payment penalties that should also be considered by debtors if they wish to take out a loan.
The first thing that prospective debtors should consider if they wish to make a loan is the amount that they are required to pay to the lender up front, because in almost all kinds of loans, the lenders would not be paying entirely for the debtors expenses, and will only shoulder around 80%-90% of the total cost. This means that the debtor would have to pay the remaining amount, and if they are unable to afford this, then they should consider other options aside from taking out a loan. Another factor that should determine whether or not people should take loans is the aforementioned Equated Monthly Installment or EMI, which is simply the amount that the debtor has to pay to the lender every month. It consists of both interest rates and repayment to the actual debt, and the amount could be mutually agreed upon by both parties, but it can also be a fixed amount, and this monthly amount should be able to determine whether the detor can pay off the loan in the long run.
In relation to the EMI, another factor that should be considered when taking out a loan would be the date for the payment of the EMI, as once this has been set, then the lender will charge the EMI on these dates and only on these dates, so careful consideration is required before one sets it. The ideal date for a person to set the EMI date would be the first week of the month, as he or she is still not yet depleted financially during these times as compared to the latter weeks of the month. Tax benefits are also something that some loans have, and should also be a factor in determining whether a person wishes to take out a loan or not. Unfortunately, only two kinds of loans have tax benefits, and these are the education loans and home loans. All the other loans do not have this.
These are just some of the factors that one should consider before he or she dives head-first to take out a loan. But the most important thing, above all, is that the person who will be making alone knows that he or she, in the long run, will be able to pay off the loan, and that the purpose of the loan will be something that will ultimately benefit them.